ISSN 1025-2266
European Commission
Competition COMPETITION POLICY
NEWSLETTER 2011 > NUMBER 3
Covering 1 May to 31 August 2011 Inside: • The Suez Environnement seal case – EUR 8 million fine for breaching a Commission seal during an inspection
p.8
• The rescue and restructuring of Hypo Real Estate
p.41
• WestLB liquidation – the end of the saga
p.45
• Telekomunikacja Polska Decision: competition law enforcement in regulated markets And main developments and articles on antitrust — merger control — state aid control
Editors: Kevin Coates, Julia Brockhoff, Christof Lessenich
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The Competition Policy Newsletter contains information on EU competition policy and cases. Articles are written by staff of the Competition Directorate-General of the European Commission. The newsletter is published three times a year. Each issue covers a four-month period: - Issue 1: from 1 September to 31 December of the previous year - Issue 2: from 1 January to 30 April. - Issue 3: from 1 May to 31 August. Disclaimer: The content of this publication does not necessarily reflect the official position of the European Commission. Responsibility for the information and views expressed lies entirely with the authors. Neither the European Commission nor any person acting on behalf of the Commission is responsible for the use which might be made of the following information. The electronic version of this newsletter is available on http://ec.europa.eu/competition/publications/cpn/ More information on the European Union is available on the Internet (http://europa.eu).
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Contents Antitrust 3 Telekomunikacja Polska Decision: competition law enforcement in regulated markets by Damian Kamiński, Anna Rogozińska and Beata Sasinowska
8 The Suez Environnement seal case – EUR 8 million fine for breaching a Commission seal during an inspection by Céline Gauer, Karine Bansard and Flavien Christ
Mergers 12 Merger: main developments between 1 May and 31 August 2011 by John Gatti
14 Votorantim / Fischer / JV Squeezing oranges, not consumers by Jose Maria Carpi Badia, Patrick D’Souza, António Seabra Ferreira, Robert Thomas and Michalina Zięba
State aid 19 State aid: main developments between 1 May and 31 August 2011 by Alessandra Forzano and Danilo Samà
26 The Assignment of Spectrum and the EU State Aid Rules:the case of the 4th 3G license assignment in France by Christian Hocepied and Ansgar Held
31 The Resolution of Anglo Irish Bank and Irish Nationwide Building Society by Christophe Galand and Minke Gort
35 First JESSICA decisions: approach and implications by Eglė Striungytė
41 The rescue and restructuring of Hypo Real Estate by Matthäus Buder, Max Lienemeyer, Marcel Magnus; Bert Smits and Karl Soukup
45 WestLB liquidation – the end of the saga by Max Lienemeyer and Marcel Magnus
Information section 49 50 50 56 57
Organigram of the Competition Directorate‑General Speeches Press releases and memos Publications Competition cases covered in this issue
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Telekomunikacja Polska Decision: competition law enforcement in regulated markets by Damian Kamiński, Anna Rogozińska, Beata Sasinowska (1)
1. Introduction On 22 June 2011 the Commission imposed on tel‑ ecoms operator Telekomunikacja Polska S.A. (TP) a fine of € 127.5 million for refusing to supply wholesale broadband products to alternative opera‑ tors (AOs). The decision found that TP’s behaviour aimed at hindering alternative operators’ access to TP’s wholesale products at every stage of the process. The finding of the abuse under Art 102 TFEU takes place in a regulated market, where the nation‑ al regulator is particularly active. The pattern of be‑ haviour over time that the Commission qualifies as abusive is different from the individual violations of national rules that TP was found to have commit‑ ted by the Polish regulator. The abuse started on 3 August 2005 and lasted at least until 22 October 2009, when, following the opening of proceedings by the Commission and an agreement signed between TP and the National Regulatory Authority, UKE, the market situation improved significantly. The Commission applied Art 102 TFEU to the tel‑ ecoms sector before in a number of cases: against Wanadoo (a subsidiary of France Telecom) in a predatory pricing case, and against Deutsche Telekom and Telefónica for engaging in margin squeeze practices respectively on the German and Spanish markets. This is, however, the first Article 102 TFEU decision addressed to a company from a Member State that joined the EU in 2004.
2. Timeline The Commission init iated proceedings on 17 April 2009. On 26 February 2010 the Commis‑ sion adopted a Statement of Objections (“SO”). An Oral Hearing took place on 10 September 2010. On 28 January 2011, the Commission sent TP a letter indicating some specific pieces of evidence relating to the Commission’s existing objections, which the Commission said it might use in a potential final decision. (1) The content of this article does not necessarily reflect the official position of the European Commission. Responsi‑ bility for the information and views expressed lies entirely with the authors.
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In the course of the investigation the Commission carried out an inspection at TP’s premises and sent a number of requests for information to TP, major market players and UKE.
3. Relevant markets and dominance Having analysed demand and supply substitutability and competitive constraints, the Commission iden‑ tified three relevant product markets: (i) the market for wholesale broadband access (“the wholesale market for BSA (2)”); (ii) the market for wholesale (physical) network infrastructure access (including shared or ful‑ ly unbundled access) at a fixed location (“the wholesale market for LLU (3)”); (iii) the retail mass market, which is the down‑ stream market of standard broadband prod‑ ucts offered at a fixed location by telecom‑ munications operators to their own end‑users, whether provided through DSL, cable modem, LAN/WLAN or other technologies such as FTTx, CDMA, WiMAX, FWA and satellite. The relevant retail market excludes mobile broadband services. The relevant geographic market covers the entire territory of Poland. TP is the owner of the only nation‑wide access net‑ work and is the only supplier of LLU and BSA in Poland. Therefore, in the wholesale markets TP has a market share of 100%. In the period covered by the decision (2005-2009), TP also held high market shares in the retail mar‑ ket. In revenue terms TP’s market shares ranged be‑ tween 46% and 57%. In terms of number of lines, TP’s market shares were between 40% and 58%. In addition, the presence on the market of PTK (TP’s subsidiary) adds to the overall market share of the TP group in the retail market. Furthermore, there are significant barriers to en‑ try and expansion in the relevant markets. They arise from the fact that duplicating TP’s network is not economically viable. Other barriers include investment and sunk costs, limited products and price differentiation as well as the absence of (2) BSA stands for bitstream access. (3) LLU stands for local loop unbundling.
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countervailing buying power. The identified high barriers to entry and expansion are consistent with the observed market structure, where each of TP’s competitors is left with a small market share of maximum 9% (in terms of number of lines) in the case of Netia, TP’s biggest xDSL competitor.
4. Abuse of a dominant position 4.1.
Refusal to supply – legal framework
The case law established that an undertaking enjoy‑ ing a dominant position is under a special respon‑ sibility not to allow its conduct to impair genuine undistorted competition on the internal market. (4) In this case the Commission established that TP had been abusing its dominant position in the Pol‑ ish broadband access markets by refusing to give access to its network and supply BSA and LLU wholesale products to alternative operators. Although undertakings are, as a rule, free to choose their business partners, the Commission considers that in the present case the intervention on compe‑ tition law grounds is justified. The Commission in its Guidance on the enforcement priorities in ap‑ plying Article 102 TFEU (5) indicates that cases of refusal to supply constitute an enforcement prior‑ ity if the following conditions are met: (i) the re‑ fusal relates to a product or service which is ob‑ jectively necessary to be able to compete effectively on a downstream market; (ii) the refusal is likely to lead to the elimination of effective competition on that downstream market; and (iii) the refusal is likely to lead to consumer harm. (6) The Court of Justice further clarified that the con‑ ditions for a refusal to supply to be abusive do not necessarily apply when assessing conduct which consists of supplying services or selling goods on conditions which are disadvantageous or under which there might be no purchaser. ( 7 ) The national sector‑specific regulation already im‑ posed on TP obligations to provide access to, and (4) See Judgment of the Court of Justice of 9 November 1983 in Case 322/81, Michelin v Commission [1983] ECR 3461, at paragraph 57, and Judgment of the CFI of 9 Septem‑ ber 2009 in Case T-301/04, Clearstream, ECR [2009], p.II3155 at paragraph 132. (5) Commission Decision of 24 March 2004 in case COMP/ 37.792 Microsoft, para. 547. (6) See “Guidance on the Commission’s enforcement priorities in ap‑ plying Article 82 of the EC Treaty [now 102 TFEU] to abusive exclusionary conduct by dominant undertakings”, Communica‑ tion from the Commission C(2009) 864 final of 9 Febru‑ ary 2009, OJ 2009/C 45/02. (7) Judgment of the Court of Justice of 17 February 2011 in Case C-52/09, TeliaSonera Sverige not yet reported, at para‑ graph 55.
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use of, specific network facilities. (8) Under the Pol‑ ish Telecommunications Law TP has had an obliga‑ tion to supply BSA and LLU access since 1 Octo‑ ber 2003. The national regulation is based on the EU regulatory framework for electronic communi‑ cations. Such access obligations result from a bal‑ ancing by the public authorities of the incentives of TP and its competitors to invest and innovate. The need to promote downstream competition in the long term by imposing access to TP’s upstream inputs exceeds the need to preserve TP’s ex ante in‑ centives to invest in and exploit the upstream infra‑ structure for its own benefit. (9) Furthermore, there is no alternative infrastructure in Poland which would enable AOs to offer retail broadband services on a national scale and which would be substitutable to TP’s local access net‑ work. AOs have to request access to TP’s whole‑ sale broadband products or duplicate TP’s infra‑ structure. The latter it is not an economically viable option. Moreover, there are additional constraints: the development of an electronic communications network entails numerous administrative obsta‑ cles, such as obtaining permits from local authori‑ ties, complying with local development plans etc. This would make the network roll‑out process even more costly, longer and difficult. Furthermore, TP rolled out its local access infrastructure over a long period of time protected by exclusive rights and was for decades able to fund investment costs through monopoly rents from the provision of voice teleph‑ ony services and from State funds. Therefore, TP’s duty to supply the upstream inputs (BSA and LLU access) is related to the finding that a denial of access to the upstream product or ac‑ cess on unreasonable terms and conditions having a similar effect would hinder the emergence and/or continuation of sustainable competition at the retail level.
4.2.
TP’s strategy
TP’s abusive conduct was part of TP’s strategy to limit competition on the markets at all stages of the process of accessing TP’s network and us‑ ing its wholesale broadband products. An internal document confirms that TP’s strategic approach to wholesale broadband services was to “minimize PKO [TP’s Wholesale Division] sales to protect retail revenues”. Various other internal documents also (8) Namely inter alia the obligation to: negotiate in good faith, give third parties access, provide specified services on a wholesale basis for resale, provide collocation or other forms of facility sharing, provide access to operational sup‑ port system and interconnect networks or network facilities. (9) “Guidance on the Commission’s enforcement priorities in applying Article 82 of the EC Treaty [now 102 TFEU] to abusive exclu‑ sionary conduct by dominant undertakings”, paragraph 82.
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4.3.
Elements of the abuse
The decision identifies a number of abusive practic‑ es, which had a cumulative, negative impact on the ability of AOs to access the incumbent’s network and effectively compete on the retail market. The evidence gathered shows that TP was: - proposing unreasonable conditions govern‑ ing AOs’ access to the wholesale broadband products; - delaying the negotiation process: in 70% of ne‑ gotiations TP did not meet a 90-day regulatory deadline for concluding negotiations; - limiting access to its network by inter alia reject‑ ing AOs’ orders on unreasonable grounds or proposing difficult technical conditions for con‑ necting to TP’s network; - limiting access to subscriber lines by inter alia re‑ jecting AOs’ orders to activate subscriber lines on unreasonable grounds or limiting the avail‑ ability of subscriber lines; - refusing to provide reliable General Information (“GI”) indispensable for AOs, or providing in‑ accurate information. 4.3.1. Unreasonable conditions TP was under a regulatory obligation to offer ac‑ cess and collocation contracts with conditions not worse than the ones guaranteed by the Reference Offers (“ROs”). The decision lists many contractual clauses contained in TP’s standard contracts, which were disadvantageous to AOs and which did not even meet the minimum standards set in the ROs. Despite several revised drafts of TP’s standard con‑ tracts, TP’s subsequent proposals still did not even come close to the ROs’ stipulations. The fact that AOs had very limited bargaining power vis‑à‑vis TP aggravated their situation. AOs were forced to accept TP’s proposal, refer the case to the regulator, or abandon the negotiation and the market entry. As a result, UKE had to intervene on the AOs’ side on a regular basis, imposing decisions on TP which removed the unfavourable contractual clauses.
4.3.2. Delaying tactics at different stages of the negotiation process In addition to unreasonable contract clauses, TP used various delaying tactics throughout the nego‑ tiation process, including at least the following: (i) delaying the start of the access negotiations (for in‑ stance, one AO received a draft contract after 226 days instead of three days, as required by the regu‑ lation), (ii) further delays at the stage of negotiating contract clauses when AOs were forced to negotiate even the minimum conditions guaranteed by law, (iii) AOs could not be certain that the negotiated compromise would be reflected in the final con‑ tract, as TP’s representatives were not authorised to commit the incumbent, and (iv) delaying the contract signature (i.e. the contract agreed between TP and AOs required the approval of intermedi‑ ate departments of TP, which sometimes took up to three months). 4.3.3. Limited access to TP’s network AOs ran into difficulties again at the stage of ac‑ cessing TP’s network. In particular, TP rejected a high number of AOs’ BSA and LLU orders on formal and technical grounds. Rejections were mainly due to: (i) unnecessary formal requirements imposed by TP for completing the orders, as well as (ii) unjustified technical rejections and, at least until 2007, a lack of satisfactory alternative solu‑ tions when there was no technical possibility to connect to the network in the way requested by AOs. Furthermore, TP proposed exaggerated cost estimates for LLU collocation, which often result‑ ed in a very high percentage of locations not being accessed by AOs despite the positive outcome of the technical verification. Moreover, TP delayed the implementation of orders and delayed execu‑ tion of certain collocation works. The evidence in the file shows that TP applied better conditions to its subsidiary PTK. 4.3.4. Limited access to subscriber lines TP also hindered AOs’ access to subscribers, par‑ ticularly by rejecting many AOs’ orders on formal and technical grounds. As a result, AOs could not provide service to a large number of customers who had signed up for it. At the same time, PTK, TP’s subsidiary, enjoyed a lower rejection rate. Rejections were caused by two factors: (i) the use of outdated TP data to verify AOs’ orders and (ii) a faulty verifi‑ cation mechanism on TP’s side. Furthermore, AOs faced limited availability of subscriber lines linked to the failure to provide BSA services on WLR (10) lines and delays in the repair of faulty lines. In (10) Wholesale Line Rental used for the provision of fixed telephony.
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indicate that TP planned and engaged in abusive practices aimed at creating “impediment(s) to [alterna‑ tive] operators’ access to the local loop”, “delaying the imple‑ mentation of a regulatory [BSA] offer” and “limiting whole‑ sale offers for [BSA and LLU] products.” Such strategy is also visible in tangible obstacles that AOs faced at each stage of accessing TP’s wholesale products.
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practice, TP prevented AOs from upgrading their narrowband clients to broadband, thus limiting their ability to expand and grow on the retail broad‑ band market. Finally, TP significantly delayed the implementation of AOs’ orders for subscriber lines. 4.3.5. Refusal to provide the reliable information indispensable for AOs AOs need reliable and accurate information to make sound decisions regarding access to TP’s wholesale broadband products at specific locations. The deci‑ sion finds that TP did not provide AOs with reliable information or provided incomplete information. Also, TP provided the data in a format (such as pa‑ per or scanned pdf) which was difficult to process and failed to provide an IT interface enabling AOs to have efficient access to BSA and LLU‑related in‑ formation and to process orders. The incomplete‑ ness and unreliability of the GI provided by TP possibly resulted in increased costs for AOs and the inability to implement their business plans. Additionally, the evidence in the file illustrates that TP provided PTK with supplementary channels of information as well as with additional informa‑ tion which was not made available to other AOs. So the process of obtaining the GI was quicker and cheaper for PTK and led for example to a reduced number of order rejections. This also indicates that TP could have improved the quality of GI and the information channels, but that it refused to do so.
4.4. Likely impact on competition and consumers TP’s abusive conduct in the wholesale market was capable of restricting competition in the retail mar‑ ket. Access contracts that include burdensome ob‑ ligations may diminish the quality of the product or increase AOs’ costs or limit their sales. Lengthy negotiations and access procedures may benefit the incumbent, especially when introducing new ser‑ vices. There is empirical evidence that TP’s refusal to supply was likely to reduce the rate of entry by competitors on the retail market for DSL services. There was a low take‑up of BSA and LLU lines. TP’s refusal to supply was likely to have a detrimen‑ tal impact on end users, which is reflected in low broadband penetration, high broadband prices and low average broadband connection speeds. In Janu‑ ary 2010, broadband penetration in Poland was only 13.5%, one of the lowest in Europe and significant‑ ly below the EU average of 24.88%. Further, Po‑ land has one of the lowest broadband speeds in Eu‑ rope, with over 66% of connections falling in the range of 144Kbps and 2 Mbps compared to an EU average of 15,4% for this segment (data for 2009). 6
Finally, retail broadband prices in Poland are the second highest in the OECD area (date for 2009).
4.5.
Objective justifications
Exclusionary conduct may escape the prohibition of Article 102 TFEU if the dominant undertaking can provide an objective justification for its behaviour or if it can demonstrate that its conduct produces efficiencies which outweigh the negative effect on competition. The burden of proof for such an ob‑ jective justification or efficiency defence is on the dominant company. (11) TP denied the existence of the abuse. It admit‑ ted certain difficulties in providing access to its wholesale broadband products, in particular in 2006 and 2007, but argued that they could be ex‑ plained “by the technical efforts and internal reorganization which TP had to undergo in a very short period of time to adjust to the new regulatory environment.” TP explained that it had to manage simultaneously several pro‑ jects on various wholesale services and had difficul‑ ties in developing proper IT systems and in finding human resources to perform certain projects. The Commission did not accept TP’s arguments. The case file contains solid evidence of TP’s exclu‑ sionary conduct. Contemporaneous internal docu‑ ments confirm that TP’s strategy was designed to impede the AOs’ access to TP’s network. The incumbent had a lot of time to prepare its inter‑ nal resources and IT systems for upcoming access obligations (imposed in 2005 for LLU and 2006 for BSA). TP had been aware of these obligations at least since 2003, when the decision identifying TP as an SMP (significant market power) operator was issued. The signature of TP’s Agreement with UKE in October 2009 and the improved treatment of AOs that followed prove that TP could have ap‑ plied effective access conditions also prior to the Agreement.
5. TP’s arguments TP argued during the administrative procedure that the Commission had limited itself to verifying the consistency of TP’s behaviour with regulatory obligations. This is incorrect. Although the regu‑ latory context was a key factor for the assessment under competition law, the Commission conducted an in‑depth assessment of TP’s behaviour under Art. 102 TFEU on the basis of a large number of documents in the file. The decision did not qualify as an abuse one or more breaches of a particular (11) See judgement of the General Court of 30 sept. 2003 Case T-203/01 Manufacture française des pneumatiques Michelin v Commission (Michelin II) [2003] ECR II-4071, at para‑ graphs 107-109.
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TP also questioned the Commission’s competence in the case, claiming that the existing regulatory framework was efficient and guaranteed competi‑ tion on the market and TP had already been subject to sanctions for breaching regulatory obligations. To address these arguments the decision evokes jurisprudence of the European courts which held that competition law may apply where sector spe‑ cific legislation exists. For example, the recent judg‑ ment by the Court of Justice in Deutsche Telekom ex‑ plains that “the competition rules laid down by the EC Treaty supplement in that regard, by an ex post review, the legislative framework adopted by the Union legislature for ex ante regulation of the telecommunications markets”. (12) The General Court also found that even under the assumption that the regulator is obliged to consider whether the behaviour of the company concerned is compatible with Article 102 TFEU, the Com‑ mission would not be precluded from finding that the company was responsible for an infringement of Article 102 TFEU. (13) To this end the decision recalls that the decisions of the regulator that TP refers to do not contain any findings on Article 102 TFEU. Finally, the intervention of the Commission was justified, as (despite the regulation in place and the sanctions imposed by UKE) TP did not change its anticompetitive behaviour, which negatively af‑ fected the development of wholesale broadband services in Poland. TP appealled the Commission’s decision on 28 October 2011 (case T-486/11, pend‑ ing). TP mainly contests the level of the fine.
6. Remedies and fines The decision required TP to bring the infringement to an end to the extent that any of the identified abusive practices was still ongoing, and to refrain from any practices which would have the same or similar object or effect as described in the decision. The decision imposed a fine taking into account the gravity and the duration of the infringement (four years and two months). No aggravating or mitigat‑ ing circumstances were taken into account. In view of the partial overlap of facts between the Com‑ mission’s decision and two regulatory sanctions im‑ posed by UKE, the Commission decided to deduct the sum of two fines imposed by UKE and paid by TP in the amount of € 8.5 million. The final fine amount was € 127.5 million.
(12) See judgement of the Court of Justice of 14 October 2010 in Case C-280/08 Deutsche Telekom, at paragraph 92, ECR [2010], p.I-9555. (13) Judgment of the General Court of 10 April 2008 in Case T-271/03, Deutsche Telekom, ECR [2008] II-477, at para‑ graph 113 and judgment of the Court of Justice of 14 Oc‑ tober 2010 in Case C-280/08 Deutsche Telekom at para‑ graphs 80-96.
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regulatory obligation vis‑à‑vis a given AO, but rather examined TP’s pattern of behaviour vis‑à‑vis a large number of AOs over more than four years, which qualified as a refusal to supply wholesale inputs.
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The Suez Environnement seal case – EUR 8 million fine for breaching a Commission seal during an inspection by Céline Gauer, Karine Bansard and Flavien Christ(1)
In April 2010 the Commission conducted an in‑ spection at the premises of water management companies in France, including Lyonnaise des Eaux (LDE), a subsidiary of French group Suez Environnement, because of suspicions of an‑ ti‑competitive behaviour in the water and waste water markets. When they arrived at LDE’s headquarters in Par‑ is on the second day of the inspection, the Com‑ mission officials conducting the inspection found that a seal had been breached. The Commission swiftly opened a standalone procedure against Suez Environnement for alleged breach of seal on LDE premises. LDE and Suez Environnement admitted that an LDE employee had breached the seal, arguing that it was an unintentional act. On 24 May 2011(2), the Commission adopted a decision under Article 23(1)(e) of Council Regulation (EC) No 1/2003(3) imposing a fine of EUR 8 million jointly and severally on Suez Environnment and LDE for this breach of the Commission’s procedur‑ al rules. This was the second time the Commission imposed a fine for breach of seal(4). This article sets out the main factual and legal elements on which the decision is based.
1. The Facts Between 13 and 16 April 2010 the Commis‑ sion carried out unannounced inspections at the premises of water management companies in (1) The content of this article does not necessarily reflect the official position of the European Commission. Responsi‑ bility for the information and views expressed lies entirely with the authors. (2) Com m ission dec ision of 24 M ay 2 011 i n Case COMP/39.796 – Suez Environnement breach of seal. No appeal was lodged before the General Court against the decision. The decision can be found at http://ec.europa.eu/compe‑ tition/elojade/isef/case_details.cfm?proc_code=1_39796. (3) OJ L 1, 4.1.2003, p. 1 (in the following text all references to Articles mean those of Regulation 1/2003). Regulation 1/2003 as amended by Regulation (EC) No 411/2004 (OJ L 68, 8.3.2004, p. 1). (4) Commission Decision of 30 January 2008 relating to a proceeding under Article 23(1) of Council Regulation (EC) No 1/2003 in Case COMP/39.326 — E.ON Ener‑ gie AG (OJ 2008/C 240/6), confirmed in appeal by the General Court Judgment of 15 December 2010 in Case T-141/08 E.ON Energie v Commission, OJ 2011/C 38/10. The case is currently pending before the ECJ (Case C-89/11 P: Appeal brought on 25 February 2011 by E.ON Energie AG (OJ 2011/C 152/11)).
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France, on suspicion of anti‑competitive behav‑ iour in the water and waste water markets. LDE, a wholly‑owned subsidiary of the French group Suez Environnement, was among the inspected companies. On the first day, the inspection team searched several offices at LDE’s headquarters in Paris and collected a large number of documents. In accordance with the Commission’s standard practice, the Commission officials affixed seals to the doors of offices that had not been or were only partially searched at the end of the first day, in or‑ der to prevent any unauthorised access overnight. The company’s representative was duly informed of the significance of the seals and of the conse‑ quences of any breach. Commission seals are 20 cm long and 7 cm wide self‑adhesive strips of plastic. Each seal bears a se‑ rial number. When the seal is affixed, the two sec‑ tions on either side of the middle section featuring the 12 stars of the European Union are uniformly red in colour. The physical properties of the seal mean that, when it is removed, some of the glue used to affix it to the door and doorframe remains on its surface. As a result, the side sections of the seal become partially transparent, so that the word‑ ing ‘OPENVOID’ stands out in these areas. In ad‑ dition, ‘OPENVOID’ letters in red remain visible across the entire surface covered by the seal on the door and doorframe. When the inspection team returned to LDE’s head‑ quarters on 14 April, the Commission officials not‑ ed that one of the seals affixed the night before dis‑ played ‘OPENVOID’. In addition, red marks were visible on the door just above the section of the seal affixed to it. The state of the seal was documented in a report signed by representatives of the com‑ pany, the national authority and the Commission. Photographs and a video recording of the seal were attached to the report. At their own initiative, Suez Environnement and LDE immediately launched internal investigations. In less than 48 hours they were able to identify the person responsible for breaking the seal, and while the Commission inspectors were still present at the site, they provided the Commission representative with a detailed statement in which that person un‑ equivocally admitted to having breached the seal. During two interviews with Commission offi‑ cials in the following days, that person confirmed his responsibility for the seal breach. At their own Number 3 — 2011
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2. Standalone procedure As in the E.ON case(5), the Commission decided to pursue this procedural infringement with a stan‑ dalone procedure. Separating these proceedings from those concerning potential breaches of Article 101 or Article 102 of the Treaty on the Function‑ ing of the European Union (“TFEU”) allows the Commission to take a prompt decision sanction‑ ing the infringement. Opening a standalone proce‑ dure swiftly after a breach of seal occurs confirms the seriousness of the infringement, whether it is committed intentionally or not. In fact, seals are a crucial instrument to protect the effectiveness of Commission inspections, which are one of the most important powers of investigation the Commission has to detect infringements of Articles 101 and 102 of the TFEU. Inspections enable the Commission to identify in‑ fringements of competition rules in cases where evidence of these infringements is held in places and forms which make it easy to conceal or destroy in the event of an investigation. In this respect, the power to conduct inspections is essential to ensur‑ ing the effective protection of competition in the internal market. The European legislator recog‑ nised the importance of this power by substantially increasing the maximum fine that can be imposed under Regulation 1/2003, in comparison with the previous Regulation 17/62, for a procedural breach relating to a Commission inspection.
3. The infringement The Decision’s finding of a breach of seal was based on several legal considerations concerning Article 23(1)(e). First, for the purpose of establishing the infringe‑ ment it is not necessary for the ‘OPENVOID’ wording to appear on the entire surfaces of the two side sections of the seal. A seal is considered to have been broken if the ‘OPENVOID’ word‑ ing appears, indicating that it has been removed from the surface to which it was affixed. In this case, the ‘OPENVOID’ letters were apparent on the right‑hand section of the seal (affixed to the door) and on a small part of the left‑hand section of the seal (affixed to the doorframe). This indi‑ cates that the seal was peeled off the door and part of the doorframe so that access to the sealed office was possible. (5) See E.ON Energie AG v Commission, cited above.
Secondly, the Commission does not have to prove any effect or consequences of a seal breach. Indeed, for the purposes of establishing the infringement it is irrelevant whether one or more people entered the office or whether documents stored there dis‑ appeared subsequent to the breach of the seal. The provision in Article 23(1)(c) relates to the breach of the seal per se and not to the potential conse‑ quences, including access to the sealed premises or tampering with documents. As the General Court ruled in the E.ON case: ‘the Commission must provide evidence that the seal was broken. However, it is not re‑ quired to demonstrate that access was indeed gained to the sealed premises or that anybody tampered with the documents stored there’(6). Thirdly, in order to establish the infringement, it is not relevant whether the seal was broken intention‑ ally or negligently. Article 23(1)(e) refers explicitly to both scenarios( 7 ). Breaches of seal are therefore defined as objective infringements. This means that undertakings to which inspection decisions are ad‑ dressed must take all necessary measures to prevent any tampering with the seals affixed by the Com‑ mission during the inspections. As ruled by the General Court in the E.ON case: ‘it should be noted that it is the responsibility of the applicant to take all the measures necessary to prevent any handling of the seal at is‑ sue, especially as the applicant had been clearly informed of the significance of the seal at issue and the consequences of its breach’(8). Accordingly, in the absence of any evi‑ dence demonstrating intention, and except in cases of force majeure, it must be considered that a broken seal is, at least, the result of negligence on the part of the undertaking in question9. In their reply to the statement of objections, Suez Environnement and LDE acknowledge ‘that the elements establishing an infringement arising from negligence [may] be described as such by the Commission’(10).
4. Fine Article 23(1)(e) provides that the Commission can impose a fine of up to 1% of a company’s total turn‑ over for a seal broken either intentionally or negli‑ gently. The amount of the fine should be propor‑ tionate and determined in the light of the gravity of the infringement and the particular circumstances of the case. However, there are no guidelines(11) in (6) (7 ) (8) (9)
E.ON Energie AG v Commission, cited above, paragraph 256. E.ON Energie AG v Commission, cited above, paragraph 256. E.ON Energie AG v Commission, cited above, paragraph 260. E.ON Energie AG v Commission, cited above, paragraphs 254 to 262. (10) Paragraph 75 of the Decision. (11) The Fines Guidelines (Guidelines on the method of set‑ ting fines imposed pursuant to Article 23(2)(a) of Reg‑ ulation No 1/2003, OJ C 210, 1.9.2006, p.2) only apply to breaches of Article 23(2)(a) of Regulation 1/2003, i.e. breaches of Articles 101 or Article 102 of the TFEU.
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initiative, the parties also provided the Commission with video recordings and statements by two LDE employees confirming the version of events given by the person who admitted to having broken the seal.
ANTITRUST
place defining the specific criteria and methods to be applied in setting fines for procedural breaches. The Commission therefore enjoys a wide margin of discretion in determining the exact amount of the fine for this type of infringement. When setting the fine in this case, the Commission took into account, first and foremost, that breaches of seals must as a matter of principle be regarded as serious infringements in that they hamper the effectiveness of Commission’s inspections. Accord‑ ingly, the level of the fine has to ensure a sufficient deterrent effect, so that it is clearly not in an un‑ dertaking’s interest to breach a seal and destroy in‑ criminating evidence rather than face a penalty for a substantive infringement. As ruled by the General Court in the E.ON case: ‘a fine of EUR 38 million can‑ not be considered disproportionate to the infringement given the particularly serious nature of a breach of seal, the size of the applicant and the need to ensure that the fine has a suf‑ ficiently deterrent effect, so that it cannot prove advantageous for an undertaking to break a seal affixed by the Commis‑ sion in the course of an inspection’(12). The Commission also took into account the fact that LDE and Suez Environnement form a large corporate group with legal expertise in competi‑ tion law, and so were perfectly aware of the pen‑ alty they could face in the event of an infringement of this kind. In this respect, the Decision notes that LDE had been duly advised by the Commis‑ sion representative that it was responsible for en‑ suring that the seals affixed during the inspection remained intact, and that the Commission had previously imposed a fine for a breach of seal. In 2008, the Commission fined E.ON Energie EUR 38 million for breaking a seal affixed during an unannounced inspection. However, the Commission also took into consid‑ eration the immediate and constructive coopera‑ tion provided by Suez Environnement and LDE. They voluntarily and without delay passed on to the Commission a great deal of information shedding light on the facts and facilitating the Commission’s investigation. Suez Environnement and LDE also provided a detailed statement by an LDE employ‑ ee in which this person unequivocally admitted to having broken the seal. Additionally, in their reply to the statement of objections, Suez Environne‑ ment and LDE accepted the Commission’s conclu‑ sions concerning the substance of the facts, their legal nature and the attribution of liability for the infringement to both of them.
(12) E.ON Energie AG v Commission, cited above, paragraph 294.
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5. Liability for the infringement In this case, the infringement was committed in LDE’s business premises and, according to the in‑ formation provided by LDE, by one of its employ‑ ees. As such, the liability for the infringement can be attributed to LDE. As LDE is a wholly‑owned subsidiary of Suez En‑ vironnement, the liability for the infringement can also be attributed to the parent company. In this respect, the Decision clarifies that the rules governing liability for infringements of competi‑ tion rules are the same for both infringements of the substantive rules in Articles 101 and 102 of the TFEU, and for infringements of the procedural rules relating to the Commission’s powers of inves‑ tigation. Since procedural infringements relating to the Commission’s powers of investigation aim to prevent or hinder detection of infringements of substantive rules, the rules on liability for proce‑ dural infringements must be governed by the same principles as the rules on liability for substantive infringements. This analysis is also confirmed by Article 23 of Regulation 1/2003, which refers in the same way to ‘undertakings and associations of undertakings’ in con‑ nection with both fines imposed for infringements of the procedural rules (paragraph 1) and fines imposed for infringements of substantive rules (paragraph 2). For these reasons, there must be parallelism be‑ tween the rules applied to parental liability for substantive and procedural infringements. This is consistent with the case‑law of the European Court of Justice in the Akzo case(13) where no distinc‑ tion is made between substantive and procedural infringements(14). Additionally, in this case, a number of circum‑ stances prior and subsequent to the discovery that the seal had been broken indicated that Suez En‑ vironnement was closely involved in the inspec‑ tion conducted at LDE headquarters. For instance, lawyers employed by Suez Environnement were on LDE premises even before the breach of seal had been discovered. (13) Judgement of the Court of Justice of 10 September 2009 in Case C-97/08 Akzo Nobel NV and Others v Commission, ECR 2009 Page I-8237. (14) For more details on the imputation of liability to par‑ ent companies for procedural infringements, see Philip Kienapfel, “Geldbuße im Siegelbruch‑Fall bestätigt” in Österreichiche Zeitschrift für Kartellrecht, April 2011/ Nr 2, page 67. See also Ralf Sauer in Schulte/Just (eds.), Kartellrecht (2011), Art. 23 para. 1 and Céline Gauer “An‑ titrust fact‑finding in administrative proceedings before the European Commission” forthcoming in 2011 Ford‑ ham Comp. L. Inst. (B. Hawk ed. 2012).
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Competition Policy Newsletter
ANTITRUST
For these reasons, the Decision was addressed to LDE and to Suez Environnement, and both were held jointly and severally liable for the infringement.
6. Conclusion The Decision in the Suez Environnement seal case illustrates a wider trend by the Commission to pur‑ sue procedural infringements relating to inspec‑ tions using standalone procedures. As already men‑ tioned, in January 2008, the Commission imposed a fine of EUR 38 million on German company E.ON Energie for the breach of a seal affixed in its premises during an inspection(15). In March 2012, the Commission imposed a fine of EUR 2.5 million on Czech companies EPH and J&T Investment Ad‑ visors for having obstructed an inspection(16). It is also important to be aware of the context; the Commission is investigating an increasing number of ex officio cases, in which inspections are a key tool for gathering evidence of breaches of Articles 101 or Article 102 TFEU. In this context, standalone prosecution of procedural infringements leading to the swift imposition of appropriate sanctions is essential to safeguard efficient enforcement of the Treaty provisions.
(15) Commission Decision of 30 January 2008, cited above. (16) See press release at: http://europa.eu/rapid/pressReleases‑ Action.do?reference=IP/12/319&format=HTML&aged= 0&language=EN&guiLanguage=en
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Mergers
Merger: main developments between 1 May and 31 August 2011 by John Gatti (1)
1. Introduction1 The Commission received 135 notifications between 1 May and 31 August 2011, a substantial increase of 45% over the previous four months and an even larg‑ er increase of 67% over the corresponding period of 2010. The Commission adopted a total of 121 first phase decisions of which 120 were unconditional clearances. Over 60% of these decisions were adopted under the simplified procedure. One first phase trans‑ action was cleared conditionally. One case was with‑ drawn in phase II while two operations were cleared unconditionally after a second phase investigation. There was one decision under Article 4(4) to partially refer a case with a Union dimension back to a Mem‑ ber State. Member States accepted nine requests from parties for cases to be referred to the Commission and refused none under Article 4(5). Finally the Commis‑ sion made one complete referral to a Member State following a request made under Article 9.
The Commission’s investigation revealed that the proposed transaction would not significantly modi‑ fy the structure of the majority of the relevant mar‑ kets, as a number of credible and significant com‑ petitors would continue to exercise a competitive constraint on the joint venture. However, the Commission found that the proposed transaction, as initially notified, would have raised competition concerns in the market for ABS, where the merged entity would have had a strong position in a market that was already concentrated. ABS is a chemical product used in a variety of applications including, for instance, refrigerator door caps, vac‑ uum cleaner components, washing machine panels, computer keyboards and housings, dashboard com‑ ponents and steering wheel covers.
2. Summaries of decisions taken in the period
To remedy the Commission’s concerns, the parties offered to divest part of INEOS’s ABS production business thus reducing the overlap. The Commis‑ sion’s market test showed that the divested busi‑ nesses would be viable and that the commitments would resolve all identified competition concerns.
2.1 Summaries of decisions taken under Article 6(2)
2.2 Summaries of decisions taken under Article 8
BASF/Ineos Styrene
Votorantim/Fischers
On 1 June 2011 the European Commission cleared under the EU Merger Regulation the creation of a joint venture combining the existing styrene mon‑ omer, polystyrene and acrylonitrile‑butadiene‑sty‑ rene (ABS) businesses of INEOS of Switzerland and BASF of Germany. The decision is conditional upon the divestment of activities in the ABS sector.
The Commission approved on 4 May 2011 the crea‑ tion of a joint venture between the Brazilian groups Votorantim and Fischer that will combine their re‑ spective activities in the orange juice sector.
BASF is the world’s largest chemical company. It is mainly active in the supply of chemicals, crude oil and natural gas, including specialty chemicals, plastics, performance products, functional solutions and agricultural solutions. INEOS is a conglomerate that produces a range of chemicals including petro‑ chemicals, specialty chemicals and oil products. The proposed joint venture would have combined INEOS’s and BASF’s existing styrene monomer, polystyrene and acrylonitrile–butadiene‑styrene (ABS) businesses, together with certain minor re‑ lated products. (1) The content of this article does not necessarily reflect the official position of the European Commission. Responsi‑ bility for the information and views expressed lies entirely with the authors.
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Votorantim and Fischer, two Brazilian firms, no‑ tified the Commission at the end of November of their plans to combine their respective Citrovita and Citrosuco orange juice operations. They requested regulatory clearance from the Commission because their sales in Europe exceed the thresholds that trig‑ ger EU jurisdiction over mergers and acquisitions. The Commission began its in‑depth investigation over concerns that the merged entity might be able to increase prices for customers. The joint venture creates the world’s largest producer and supplier of orange juice to companies that supply end consum‑ ers with branded or private label products. It will also hold important market positions in a number of by‑products obtained from the orange juice extrac‑ tion process, such as orange oils and essences, orange pulp and citrus pellets. The by‑products are used in the production of chemicals and solvents, aromas and fragrances, paints and cosmetics and animal feed. Number 3 — 2011
Competition Policy Newsletter
The in‑depth investigation also ruled out the pos‑ sibility that the creation of the joint venture could lead to an increased risk of coordination on the or‑ ange juice market as the transaction increases the asymmetry in market shares between the main sup‑ pliers and does not appear to change the current situation in a way that would make coordination more likely, stable or effective. UPM/Myllykoski The Commission cleared the proposed acquisition of Myllykoski Corporation and Rhein Papier GmbH (“the Myllykoski Group”) by UPM‑Kymmene Cor‑ poration (“UPM”) on 13 July 2011. Both groups are active in the paper and pulp industries. The Com‑ mission’s in‑depth investigation confirmed that the merged entity would continue to face competition from a number of other strong competitors and customers would still have sufficient alternative suppliers in all markets concerned. The Commission examined the competitive effects of the proposed acquisition in the markets for the supply of magazine paper, newsprint, the acquisi‑ tion of recovered paper, wood procurement and the production of wood pulp, as well as a number of vertical relationships. The Commission opened an in‑depth investiga‑ tion after a preliminary assessment, because it had doubts about the transaction’s compatibility with the internal market in relation to magazine paper and particularly in the supercalendered (SC) paper segment where the combined entity would have high market shares. SC paper is a non‑coated paper used for catalogues and direct marketing materials. The production of all papers involves the use of cal‑ endars at the end of the manufacturing process to smooth the surface. Following a detailed investigation, the Commission found that the parties’ competitors have significant spare capacity which would enable them to react to any attempts by Finland’s UPM to raise prices. Furthermore, the demand for magazine paper is forecast to remain stable or even slightly decline, so sufficient capacity will remain available on the Number 3 — 2011
market in the future. Moreover, a new type of pa‑ per, known in the industry as SC‑B Equivalent, was introduced recently on the market and the Com‑ mission’s investigation showed that the new prod‑ ucts derived from this paper are competing directly with one type of SC, namely SC‑B paper. These recent market entrants are already putting signifi‑ cant competitive pressure on the parties and their importance is expected to increase in the near fu‑ ture. The Commission therefore concluded that the transaction would not raise competition concerns.
2.3 S ummaries of decisions taken under Article 9 LGI/KBW On 17 June 2011 the Commission referred the as‑ sessment of the proposed acquisition of Kabel Baden‑Württemberg (KBW) by Liberty Global Inc. (LGI) to the German competition authority (Bun‑ deskartellamt) at the latter’s request. After a prelim‑ inary investigation, the Commission found that the proposed transaction may significantly affect com‑ petition in the market for the provision of free‑TV services to housing associations, where contracts with tenants are negotiated collectively. This repre‑ sents a large market in Germany. Germany asked for the referral of the case argu‑ ing that it threatened to significantly affect com‑ petition in some of its domestic TV‑related mar‑ kets. Currently, there are three regional cable TV operators in Germany: Kabel Deutschland, Unity‑ media (owned by LGI since 2010) and KBW. The proposed transaction would bring together the second and third largest regional cable TV opera‑ tors in the country. The proposed transaction will now be examined by the Bundeskartellamt under national law. The Commission’s preliminary investigation, con‑ ducted in close cooperation with the Bundeskartel‑ lamt, revealed that the proposed transaction risked significantly affecting competition for the retail supply of free‑TV services to housing associations in Germany. Currently, regional cable operators do not compete with each other. However, it cannot be excluded that this is the result of co‑ordination among the operators and that the proposed trans‑ action would strengthen such coordination among the three regional operators. Moreover, the pro‑ posed transaction might affect competition in the national market for the wholesale supply of TV sig‑ nal transmission services. The Commission decided to refer the entire case to the Bundeskartellamt because almost all the mar‑ kets potentially affected are national or regional and the Bundeskartellamt has significant experience in this sector. 13
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The Commission’s in‑depth examination showed that despite the joint venture’s leading position on the orange juice market, it would continue to face competitive pressure from other established suppli‑ ers. It showed that these suppliers would not be re‑ stricted in their access to fresh oranges and would therefore be able to counteract any strategy on the part of the joint venture to increase prices by reduc‑ ing output. The Commission’s in‑depth investiga‑ tion also revealed that many customers have multiple sources of supply and that switching costs are low given the commodity‑type nature of the orange juice produced by the joint venture and its competitors.
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Votorantim / Fischer / JV Squeezing oranges, not consumers By Jose Maria Carpi Badia, Patrick D’Souza, António Seabra Ferreira, Robert Thomas, Michalina Zięba (1)
Introduction
The relevant markets
Last year the Commission adopted a decision in what has come to be known as the “orange juice case” (3), as it dealt with the creation of the leading orange juice supplier to the European market.
The main focus of the case was orange juice pro‑ duction and supply, though the Commission also examined a number of by‑products of the juice pro‑ duction process. (5)
The Brazilian groups Votorantim and Fischer (“the notifying parties”) wanted to merge their respec‑ tive orange juice subsidiaries Citrovita and Citro‑ suco in a full function joint venture (“JV”). The JV would become the largest orange juice supplier to Europe and the merged entity would face only two other sizeable suppliers: the Brazilian juice pro‑ ducer Cutrale and the international agricultural and commodities group Louis Dreyfus Commodities (“LDC”).
Most of the orange juice consumed in Europe is imported from Brazil, which is the most important orange growing area in the world and accounts for 38% of global orange production according to in‑ dustry figures. Brazil’s share of global orange juice production is, at 58%, even higher than its share of fresh orange production. Brazil and the US, which is the second largest producer, together account for 89% of world orange juice production.
During the investigation, it became apparent that orange juice is a homogeneous good and that the major suppliers are vertically integrated to varying degrees. The main concerns customers raised were related to price increases by the JV. Consequently, the Commission’s assessment paid particular atten‑ tion to the ability and incentive of the remaining competitors to counteract any attempt by the JV to increase prices unilaterally. The capacity constraints of the main competitors along the supply chain were therefore investigated in detail. The decision provides two important insights. On substance, it shows how the Commission approach‑ es mergers in homogeneous goods markets where concentration on the supply side is relatively high. On procedure, the Commission used a consider‑ able amount of economic data obtained from the notifying parties and their main competitors. The outcome of the case shows that the Commission is prepared to clear cases that are examined in‑depth early after proceedings are initiated, as soon as suf‑ ficient facts are available. (4)
(2) The content of this article does not necessarily reflect the official position of the European Commission. Responsi‑ bility for the information and views expressed lies entirely with the authors. (3) Case M.5907 (4) The Commission’s decision has already attracted a good deal of attention. See: Dominique Berlin, Horizontal overlaps: The European Commission clears without any condition the merger of activities of two of the main players in the orange business in Brazil after an in‑depth investigation (Votorantim/Fischer/JV ), Concurrences, N° 1-2012, n°42282, www.concurrences.com.
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Oranges can be processed into two main types of juice: “frozen concentrated orange juice” (“FCOJ”) and “not from concentrate orange juice” (“NFC”). FCOJ is concentrated orange juice from which excess water has been removed by an evaporation process. Transported to Europe by ship, FCOJ is reconstituted by drinks companies before being packaged and sold to consumers. NFC is not con‑ centrated and retains its original volume from the processing plant to the supermarket shelf. The notifying parties submitted that the effects of the transaction should be assessed on a market comprising the production and wholesale supply of all fruit juices. But the Commission’s investigation confirmed the market was no broader than that of orange juice only. This conclusion was supported, inter alia, by the responses of the many drinks com‑ panies contacted as part of the investigation. More‑ over, an analysis of wholesale and retail level pricing data did not prove that orange juice and apple (or other) juice(s) exert a significant competitive con‑ straint on each other that would justify including orange juice and other fruit juice products in the same market. Having concluded that the relevant product market was no broader than orange juice, the Commission then examined whether it would be appropriate to distinguish between FCOJ and NFC. Although the facts collected during the Commission’s investi‑ gation pointed towards both limited demand‑side and supply‑side substitutability between FCOJ and NFC, which could suggest separate product (5) These by‑products included orange oil and essences, or‑ ange terpene, citrus pulp and citrus pellets.
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Competition Policy Newsletter
The concerns raised in the initial phase of the investigation The qualitative and quantitative evidence exam‑ ined during the initial phase of the investigation provided support for different (mutually exclusive) theories as to how prices could increase after the transaction. The transaction could have given rise to non‑coor‑ dinated effects. The JV would become the world’s leading orange juice producer and largest supplier of orange juice to the EEA with a market share of 40-50%. Furthermore, on the overall market for the production and wholesale supply of orange juice (encompassing both FCOJ and NFC) to the EEA and, alternatively, in a market for the produc‑ tion and wholesale supply of FCOJ to the EEA, the concentration would have reduced the number of main competitors from four to three. The theory of harm was therefore based on the JV being able to increase prices and decrease output, without be‑ ing counterbalanced by the remaining competitors, notably due to capacity constraints. Moreover, Citrovita was the only large FCOJ pro‑ ducer which was not yet active in NFC, so it could have been a potential entrant in the latter segment. Consequently, the transaction could also possibly have led to the elimination of a potential competi‑ tor, again a non‑coordinated effect. Finally, the transaction could also have given rise to coordinated effects since it would reduce the num‑ ber of main competitors from four to three. The information gathered from the many recipi‑ ents of the Commission’s requests for information, conference calls, and internal documents combined with market data analysis pointed mainly to a po‑ tential distortion of competition via non‑coordinat‑ ed behaviour, notably through an increase in prices. In order to analyse thoroughly the above theories of harm, the Commission opened an in‑depth investi‑ gation of the case (“phase two”) on 7 January 2011. This investigation also aimed to assess the impact of the proposed JV on a number of orange juice by‑products.
The phase two investigation The phase two investigation explored in detail the various strategies, in particular output reduction, through which the JV could achieve higher prices. As identified at the end of the phase one in‑ vestigation, several elements pointed towards
Number 3 — 2011
non‑coordinated effects. The JV would have a combined market share of 40-50%; as the clear market leader, it would be the main beneficiary of a price increase; and the number of alternative suppliers would be limited. These concerns were supported by a number of customer responses to the Commission’s requests for information sent in phase one. Against this background, the in‑depth investiga‑ tion involved more far‑reaching and detailed data requests to the notifying parties and their main competitors, complementing the phase one re‑ quests. Specific attention was given to elements with particular importance for switching and ca‑ pacity constraints, i.e. the varieties of oranges avail‑ able for processing, the distance between the vari‑ ous plants and orange groves and the existence of idle capacity at the various stages of production (ac‑ cess to oranges, processing, storage/logistics and transport). This quantitative approach was complemented by comprehensive requests for information ad‑ dressed to the notifying parties’ customers as well as to their main and smaller competitors in the or‑ ange juice market. The investigation was widened through extensive telephone interviews with Brazil‑ ian orange growers and further requests for internal documents addressed to the notifying parties.
Homogeneous products and low switching costs In homogenous markets, a merger is less likely to result in anti‑competitive effects the lower switch‑ ing costs are for customers and the less capaci‑ ty‑constrained competitors are. However, both conditions have to be fulfilled simultaneously. Low switching costs ensure that customers can shift their purchases away from the JV in case of a price increase, while the absence of capacity constraints ensures that competitors can respond to such a shift in demand by significantly expanding output, pro‑ vided they have an incentive to do so. During phase one, the Commission already had some indications that the relevant product markets were largely homogenous. The phase two investiga‑ tion enabled the Commission to deepen its under‑ standing of the characteristics of FCOJ and NFC as well as the procurement market, where fresh or‑ anges are traded. Based on this investigation, the Commission con‑ cluded that although there are differences in taste and quality between oranges produced in Brazil and other countries such as Mexico, Cuba or Spain, these differences are rather limited across oranges produced in Brazil. Orange groves are concentrated
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markets, the Commission ultimately left this point open as it was not critical for the competitive as‑ sessment of the transaction.
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in São Paulo State, a region known as the “citrus belt”, which is as large as Belgium. More than 90% of the oranges processed into juice in Brazil come from the citrus belt. Moreover, all the main orange juice producers have processing plants in the region and procure almost all their orange requirements within the region. Since they all face similar or even identical supply conditions for their inputs and ap‑ ply the same processing technology, their orange juice has similar characteristics. Indeed, most customers in the EEA confirmed that the four main players, Citrovita, Citrosuco, Cutrale and LDC, were equally able to provide FCOJ in the requested volumes and quality. Quotes are usually requested from all main players, multi‑sourcing is a common practice, switching costs are low – all suppliers have their terminals located in the same area in the EEA (Ghent, Antwerp and Rotter‑ dam) – and switching takes place on a regular basis. The Commission also undertook a detailed analy‑ sis of customer‑level sales data from the JV and its competitors, including all sales of FCOJ and NFC by the four main suppliers for the years 2006-2009. Figure 1 shows an example of the data analysis un‑ dertaken for a large customer: Figure 1: Example of a customer X in the EEA switching its FCOJ requirements between suppliers during the period 2006 -2009 – Source: market investigation Customer X - Share of Suppliers for FCOJ 100%
Supplier D; 0%
Supplier D; 0% Supplier D; 5% Supplier D; 17%
90% 80%
Supplier C; 34%
70% Supplier B; 3%
Supplier C; 69%
60%
Supplier C; 49%
Supplier C; 71%
50% 40% 30%
Supplier A; 63% Supplier B; 12%
20%
Supplier B; 33% Supplier B; 24%
Supplier A; 19%
10% 0% 2006
Supplier A; 1%
Supplier A; 0%
2008
2009
2007
Supplier B
Supplier A
Supplier C
Supplier D
Customer X tends to use at least three suppliers but over time it reallocated its purchases from Supplier A (who was the main supplier in 2006) to Supplier C (who was the main supplier in 2007-2009). As of 2008, customer X bought only minimal volumes from supplier A. Customer X also started purchas‑ ing FCOJ from supplier D in 2008. For all the largest customers, similar yearly changes can be observed. In conclusion, the in‑depth investigation showed that suppliers competed closely with each other, that switching costs were low and that all four sup‑ pliers were generally seen as highly interchangeable by customers.
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Therefore, should the JV unilaterally increase its prices following the merger, their customers would face no difficulty in switching significant sales to the notifying parties’ competitors unless these competitors encountered significant barriers to expansion.
Spare capacity along the supply chain While the homogeneity of the product and the abil‑ ity of customers to switch suppliers are important elements limiting the risk that the proposed trans‑ action would harm customers, this is only one part of the story. In addition, it was necessary to demon‑ strate that competitors could respond to any strat‑ egy leading to output restrictions and price rises. Thus, the ability of competitors, in particular LDC and Cutrale, to expand their production of orange juice became another cornerstone of the case. As the supply chain for orange juice (FCOJ or NFC) involves several stages – starting with the orange and ending at the port in Europe – the abil‑ ity to expand production could encounter several bottlenecks. So the Commission investigated plant level capacity and production data at each level of the production and supply chain of orange juice (and FCOJ in particular) starting with the process‑ ing capacity as well as storage and transport/logistic facilities available to the notifying parties’ competi‑ tors. Detailed data on the procurement of oranges were requested from the notifying parties and their main competitors. Starting at the procurement level, the phase one investigation identified a number of constraining factors: the land available for planting orange trees, the growing conditions, demand for oranges from the fresh fruit market, the proximity of oranges to the processing plant, as well as the specifications and quality standards of oranges demanded by the bottlers. It was already argued that the four main suppliers were located and procured their oranges from within the citrus belt and therefore were able to deliver almost identical products. The in‑depth investigation showed that several suppliers had re‑ cently invested in new orange groves beyond the replacement of old trees, ultimately increasing their in‑house capacity. Moreover, a detailed analy‑ sis of the four main suppliers’ contract portfolios confirmed that each year a significant number of contracts and respective volumes of oranges be‑ come available on the procurement market to all processors. This meant that even if the JV were to reduce its procurement of oranges – with the ulti‑ mate objective of decreasing output and increas‑ ing prices for orange juice – these oranges would in all likelihood be available on the spot market to its competitors. Finally, while the area of land available for growing oranges was limited and faced Number 3 — 2011
Competition Policy Newsletter
The Commission therefore concluded that there were hardly any capacity constraints at the level of fruit procurement. In order to assess the capacity constraints at the processing level, the Commission compiled dur‑ ing the in‑depth investigation capacity utilisation data on a monthly basis for each plant of the four main orange juice suppliers. This refined approach enabled the Commission to take into account the seasonality of the orange processing industry and to analyse capacity constraints during the peak of the harvest season. The analysis led to the conclu‑ sion that spare capacity for orange juice exists at the processing level for the notifying parties’ com‑ petitors. For one competitor, about 10-20% of total processing was not utilised in the last two years and the capacity utilisation was even lower just before or just after the peak month. Though some com‑ petitors indicated that during the peak of the crop season they fully utilised their capacity in most (but not all) plants, others exhibited spare capacity. The analysis confirmed the ability of competitors to expand production at the processing level using different avenues in case of an orange juice price in‑ crease: some respondents indicated that they could theoretically process up to 10-20 million boxes of additional oranges (in particular by lengthening the production season in order to process the late season fruit), while others replied that they could bridge potential shortages of oranges with stored orange juice as well as by processing additional box‑ es using their spare capacity. (6) After processing the oranges into juice, the product needs to be shipped to ports in the EEA and so ca‑ pacity constraints in relation to transport/logistics could prevent competitors from expanding their supply. However, during the initial investigation as well as the in‑depth investigation, almost all com‑ petitors confirmed that there are no possible capac‑ ity constraints in transport/logistics. While at the time Citrosuco was shipping orange juice for LDC under a contract expiring in 2012, there were no indications that LDC would be short of transport capacity if Citrosuco did not renew the contract and instead shipped FCOJ produced by Citrovita. First, such a reallocation of transport would free up third‑party capacity (especially in view of the fact that at the time Citrovita was renting space on third party vessels), which could be used by LDC. Sec‑ ond, the investigation confirmed that alternatives
should be available in the market for bulk transport (namely the possibility of leasing space for bulk transportation on third‑party vessels). Finally, no substantiated concerns were voiced about poten‑ tial storage capacity bottlenecks at the terminals in Brazil and in the EEA. Consequently, the Commis‑ sion concluded that no capacity constraints existed in relation to transport or logistics in the supply of orange juice. Given the absence of capacity constraints at all levels of the supply chain, the ability of the JV’s competitors to expand production in case of an orange juice price increase was established. How‑ ever, that ability alone is only a necessary, but not sufficient, condition to counteract a price increase. Thus, the Commission also looked at the incentives of competitors to increase supply. Respondents in the market investigation, in particular the main competitors Cutrale and LDC, highlighted a par‑ ticular feature of the orange juice production pro‑ cess, namely the importance of economies of scale. According to them, orange juice producers have an incentive to use as much capacity as possible in their plants since “the higher […] capacity us‑ age rates during the season, the lower the per unit processing cost will be.” Indeed, if the JV were to reduce output following the transaction, the opti‑ mal reaction of competitors would be to increase their sales. When a competitor sets its output level pre‑merger, profit optimization implies that the margins gained on additional quantities equal the profit lost due to the depressing effect that the out‑ put expansion would have on the prices of existing sales. If the JV decreased its production to push up prices, the competitors’ additional margins on the additional quantities would increase, giving them an incentive to expand production in response. Due to the absence of capacity constraints in this market, however, competitors would be able to serve the freed demand without substantially in‑ creasing marginal cost, which means that the im‑ pact on price of such an output reduction would necessarily be limited (and hence not profitable for the combined entity). As a result, competitors would not only have the ability, but also the incentive to use existing spare capacity to counteract a potential price increase by the notifying parties. Although the proposed transaction would result in the creation of the leading supplier of orange juice, in particular of FCOJ, to the EEA, the Commission was able to conclude that the establishment of the JV would be unlikely to result in anti‑competitive effects in the market for the production and wholesale
(6) A box is the standard term in the industry for 40.8 kg of oranges.
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competition from other crops, in particular sugar cane, improved technology, better disease control and denser planting were expected to result in in‑ creased orange yields from existing groves.
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supply of orange juice (or alternatively of FCOJ) in the EEA. ( 7 )
Conclusion The case showed in an exemplary way the relevance of the Horizontal Merger Guidelines, which pro‑ vided the analytical ground for assessing the case. Indeed, the decision carefully analysed potential non‑coordinated effects in a homogeneous product market using the concepts of closeness of compe‑ tition, switching costs, alternative suppliers and the importance of spare capacity. Moreover, the outcome of the case demonstrated that the Com‑ mission is prepared to clear cases which warrant an in‑depth examination early after the initiation of proceedings, once sufficient facts are available.
(7) The in‑depth investigation also ruled out the possibil‑ ity that the creation of the joint venture could lead to an increased risk of coordination on the orange juice mar‑ ket, as the transaction increases the asymmetry in market share between the main suppliers and does not appear to change the current situation in a way that would make coordination more likely, stable or effective. The Com‑ mission also concluded that the proposed joint venture would not lead to anti‑competitive harm in the NFC or‑ ange juice market, in which Citrovita was not active and was not perceived as a potential competitor to Citrosuco. In the case of the by‑products obtained from the orange juice extraction process, the Commission concluded that the JV would continue to face competitive pressure from the same companies that are already active on the orange juice market. In addition, alternatives exist for some of the by‑products in certain end applications.
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Number 3 — 2011
Competition Policy Newsletter
State AID
State aid: main developments between 1 May and 31 August 2011 by Alessandra Forzano and Danilo Samà (1)
Policy developments In the second quarter of 2011 no legislation was adopted in the State aid field. The public consulta‑ tions launched in the previous quarter on the EU Emission Trading Scheme (ETS), on regional air‑ ports and public funding to broadband networks, were closed.
Decisions adopted( ) 2
Decisions taken under Article 106 TFEU: services of general economic interest Crédit Mutuel On 24 May 2011, following a formal investigation started in 1998, the Commission decided that Crédit Mutuel was not overcompensated for distribution of the Livret bleu savings account in France(3). In 1975 France created the Livret bleu savings account and entrusted Crédit Mutuel with its distribution. In 1991, Crédit Mutuel gradually had to transfer the funds col‑ lected through the Livret bleu accounts to the Caisse des Dépôts et Consignations (CDC), which, in return, paid Crédit Mutuel a commission. In 2009 France liberalised the rules on the distribution of the Livret bleu and Livret A tax‑free savings accounts, allow‑ ing all banks to market them. The Commission’s decision has established that Crédit Mutuel was not overcompensated for distribution of the Livret bleu from 1991 to 2008 and the investigation was closed. The Commission holds that Crédit Mutuel benefited from State aid from 1991 to 2008 for distributing the Livret bleu accounts in France. However, this aid is deemed compatible with the EU rules on State aid and services of general economic interest, since the institution was not overcompensated for performing the public service, which consisted of collecting savings to fund the social housing sector through the CDC. This ruling is supported by three main considerations:
(1) The content of this article does not necessarily reflect the official position of the European Commission. Responsi‑ bility for the information and views expressed lies entirely with the authors. (2) This is only a selection of the decisions adopted in the period under review. (3) C 88/1997 (ex NN 183/1995).
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(i) the Commission excluded from its calculations certain revenues received by Crédit Mutuel before the 1991 Government Order transferring the funds gathered via the Livret bleu accounts to the CDC, since those revenues could clearly not be linked to the transfer, initiated after the Order, of the funds to the CDC; (ii) the Commission deemed it justified for Crédit Mutuel to generate a profit margin (a limited one since the activity involves little risk) for collect‑ ing the funds; (iii) t he method used from 1991 to 2005 to assess whether overcompensation had taken place consisted of comparing the amount of aid re‑ ceived with the net costs incurred over the pe‑ riod, rather than comparing the aid received each year with the net costs incurred over that same year (in which case overcompensation for a given year could not be offset against un‑ der‑compensation for another year).
Decisions taken under Article 107(1) TFEU Ålands Industrihus On 13 July 2011 the Commission adopted a nega‑ tive decision(4) concerning financing in the form of guarantees and other equity interventions granted by the local government of Åland to Ålands Indus‑ trihus Ab (ÅI), a state‑owned commercial property company in the Åland islands, in the Baltic Sea be‑ tween mainland Finland and Sweden. The Commission’s investigation covered several capital increases and guarantees for bank loans that were granted to ÅI by the local government for the purpose of developing the “iTiden” office park in Mariehamn, the regional capital. The Commission established that the return the local government expected on its investments was much lower than the return a private investor would have demanded, and that the public guarantees were also priced be‑ low market levels. Consequently, the company re‑ ceived funding on much better terms than other firms, which had to obtain financing on the private markets. This gave ÅI an unfair advantage over its competitors. The Commission therefore ordered Finland to recover the aid, around €4.7 million, plus interest from the time the aid was granted. (4) SA.21654 (ex C 6/2008, ex NN 69/2007).
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State AID
Aid to certain Greek casinos Fol low i ng a n i n‑ dept h i nvest i g at ion , on 24 May 2011(5) the Commission found that the dif‑ ferent taxation of casino entrance fees is unlawful aid because it creates fiscal discrimination in favour of public casinos and causes the State to forgo rev‑ enues which it would otherwise have collected. The measure distorts competition and affects trade be‑ tween Member States, as operators in this sector are often international hotel groups, whose decisions to invest or divest can be affected by the selective measure. The Commission found that the declared objective of discouraging gambling cannot be rec‑ onciled with the fact that the lower‑priced casinos include those closest to the major centres of popu‑ lation in Greece, or with the explicit possibility to admit customers without payment. The Commission ordered recovery by Greece from the State‑owned casinos, starting from 1999. In the absence of complete information regarding the aid amounts, the Commission provided Greece with guidance on how to calculate the recovery amount and requested Greece to cancel all outstanding fis‑ cal advantages deriving from the measure. It notes that Greece is considering changing the pricing re‑ gime to eliminate discrimination between casinos. In 2009 the Commission received a complaint al‑ leging that the taxation of admissions to casinos in Greece was discriminatory and entailed State aid in favour of the public casinos. Under Greek law, admission tickets are taxed at a uniform 80%, but the price of tickets, which is regulated, is €6 for State‑owned casinos, whereas private ones are required to charge €15. This means that private casinos must pay a €12 admission tax per person (80% x 15) to the State, while public casinos (and also a single private casino exceptionally treated as a public one) only pay €4.8 (80% x 6).
Decisions taken under Article 107(2)(a) TFEU Social support for individual consumers German tax exemption for flights to and from North Sea islands On 29 June 2011, the Commission authorised(6 ) a plan by Germany to exempt selected groups of passengers to and from seven German islands ( Juist, Norderney, Helgoland, Baltrum, Langeoog, Wangerooge, Borkum) from a newly‑created tax on air transport. This is to avoid penalising islanders who already pay comparatively more for air travel. (5) SA.28973 (ex C 16/2010, ex NN 22/2010). (6) SA.32888.
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The measure is an exemption from a new German air transport tax. Since 1 January 2011 all passen‑ gers departing from German airports are subject to an air transport tax, the amount of which depends on their final destination (€8 for domestic, EU and EEA destinations). The exemption is limited to res‑ idents of the islands, medical flights and civil serv‑ ants working on the islands. Thus, the aid is limited to flights between islands that face a connectivity problem due to ferries that can only run at high tide and in good weather conditions. Germany requires passengers to prove their eligibility for the scheme. The annual budget for the aid is estimated to be around €120,000. Article 107(2)(a) TFEU permits aid of a social char‑ acter, providing it is granted to individuals on the basis of conditions where there is no discrimination related to the origin of the products or services con‑ cerned. The German tax exemption is in line with the Commission’s decision practice that residence on an island may be regarded as a social handicap.
Decisions taken under Article 107(2)(b) TFEU Natural disasters German ex ante disaster aid scheme On 10 May 2011 the Commission approved( 7 ) a scheme notified by Germany to grant support for damage caused by natural disasters in the Fed‑ eral State of Bavaria. The aid can be granted over a six‑year timeframe in the form of direct grants, interest subsidies or guarantees to enterprises ac‑ tive in all sectors, except agriculture, and will only cover certain categories of uninsurable disasters for which there is a consolidated Commission practice (i.e. earthquakes, landslides, floods and avalanches). The key aspect of the case is that the Commission accepted this notification and adopted a decision before a natural disaster actually occurred (ex ante disaster aid scheme). However, aid can be granted only if a natural disaster occurs and once the re‑ quirements of the scheme are met. Thus, the Fed‑ eral State of Bavaria will be able to start implement‑ ing aid measures without any further authorisation from the Commission. Even though no common definition of a “natural disaster” exists, the categories covered by the noti‑ fied scheme are in line with the Commission’s prac‑ tice and the jurisprudence of the European Court of Justice. Moreover, the German authorities must inform the Commission about every concrete ap‑ plication of the notified scheme within fifteen days, (7 ) N 274b/2010.
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Competition Policy Newsletter
Decisions taken under Article 107(3)(b) TFEU Banking Schemes The Commission extended certain bank guarantee schemes for credit institutions in Greece, Hungary, Ireland, Lithuania, Poland, Portugal and Spain(8). The extended schemes comply with the 2010 Com‑ munication on support measures for banks during the financial crisis. Furthermore, the Commission approved an amendment to a winding‑up scheme in Denmark(9) and prolonged recapitalisation schemes in Greece, Poland and Portugal(10). Ad hoc aid Agricultural Bank of Greece
On 23 May 2011 the Commission approved(11) the restructuring plan of the Agricultural Bank of Greece (ATE), judging it apt to restore the bank’s long‑term viability whilst ensuring it shares the burden of its restructuring and limits distortion of competition in the Greek retail banking market. ATE is the fifth largest banking group in Greece. With assets totalling around €30 billion at the end of 2010, ATE has approximately 6% of total bank assets in Greece. ATE’s difficulties arose mainly from poor asset quality (weighing on profitabil‑ ity and on solvency) and from a traditionally low pre‑impairment profitability. ATE received State capital of €675 million in 2009 under the support measures for credit institutions in Greece. It also benefitted from the Greek State guarantee and bond loan schemes. In April 2011, the bank an‑ nounced a share capital increase of €1,259.5 mil‑ lion of which up to €1,144.5 million would be subscribed by the Greek State and at least €115 million would be subscribed by market investors. Furthermore, the bank committed to reducing its overall assets by 25% during the restructuring pe‑ riod through sales, the run‑off of certain securities portfolios and reduction of total loan balances. The Commission concluded that the restructuring plan submitted in April 2011 should allow ATE to (8) Greece: SA.33153; Hungary: SA.32994, SA.32995; Ire‑ land: SA.33006; Lithuania: SA.33135; Poland: SA. 32946 SA.33008; Portugal: SA.33178; Spain: SA.32990. (9) SA.33001. (10) Greece: SA.33154; Poland: SA.33007; Portugal: SA.33177. (11) SA.31154 (N429/2010).
Number 3 — 2011
return to long‑term viability. It also contains suf‑ ficient measures to ensure that the bank’s owners contribute adequately to the cost of restructuring and to limit the distortion of competition brought about by the state support. Therefore the plan ful‑ fils the criteria of the Commission’s Restructuring Communication for banks. The plan was also as‑ sessed in the context of the international macro‑fi‑ nancial assistance programme by the International Monetary Fund (IMF), the European Central Bank (ECB) and the EU, where Greece reaffirmed its commitment to fully implement the restructuring plan of ATE. Hypo Alpe Adria Group
On 19 July 2011 the Commission temporarily approved(12) a €200 million asset guarantee, which Austria granted to the bank at the end of 2010. Given the specific characteristics of the guaran‑ tee, which shelters the bank from losses already in‑ curred, the Commission assessed the aid under the rules applicable for capital injections and found that the terms are in line with the Commission’s guid‑ ance documents on the recapitalisation of financial institutions during the crisis. In particular, the bank will have to pay back any amounts actually paid out by Austria. The additional aid became necessary af‑ ter an asset screening exercise revealed the need for further asset write‑downs. On the same day the Commission also decided to extend(13) its in‑depth investigation into the bank’s newly submitted restructuring plan, in order to take into account the additional aid, as to date the infor‑ mation provided did not allay all the doubts raised by the Commission regarding HGAA’s return to long‑term viability, and necessary safeguards to limit distortion of competition. HGAA is the sixth largest Austrian bank. A former subsidiary of the German BayernLB, it was taken over by the Republic of Austria in December 2009, when Austria had to grant emergency aid in the form of a €650 million recapitalisation operation. Amagerbanken
On 6 June 2011 the Commission granted temporary approval(14) to Danish support for the liquidation of Amagerbanken, which was declared bankrupt in Feb‑ ruary 2011. The aid is limited to what is necessary to facilitate an orderly wind‑up of Amagerbanken, the country’s eighth largest bank, which has been in trouble since it was severely hit by the 2008 fi‑ nancial crisis. The liquidation is being carried out in accordance with the Danish scheme for winding up (12) SA.32172. (13) SA.32554. (14) SA.32634.
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State AID
starting from the first implementation of the meas‑ ures. If an event does not qualify as a natural disas‑ ter, the Commission would take appropriate action.
State AID
financial institutions in distress. The plan involves measures that require swift Commission approval, which is being granted provisionally. The Commission found that in the present case the bank, its shareholders and its subordinated debt holders are contributing sufficiently to the State aid effort. Moreover, measures will be taken to limit the negative spill‑over effects for other competitors. Therefore, the measures, comprising a conditional agreement on the transfer of assets and certain li‑ abilities, a liquidity facility agreement and a subor‑ dinated loan, can be considered proportionate to the objective, well targeted and limited to the minimum necessary and thus temporarily compatible with Ar‑ ticle 107(3)(b) TFEU as set out in the Commission’s guidance on aid for banks during the crisis. The measures in favour of Amagerbanken are approved for six months or, if the Danish authorities submit a wind‑up plan within six months, until the Com‑ mission has adopted a final decision on that plan. Eik Bank
On 6 June 2011 the Commission cleared(15) Dan‑ ish support for the liquidation of Eik Bank, as it provides for an orderly wind‑up of the bank and foresees sufficient safeguards to limit distortion of competition. The bank, until 2010 the biggest fi‑ nancial institution in the Faroe Islands, with signifi‑ cant retail and corporate banking activities in the rest of Denmark, ran into severe liquidity and sol‑ vency difficulties due to excessive lending in risky projects and entered into the Danish scheme for the winding‑up of financial institutions in distress. Some activities were offered for sale in a public tender while others were transferred to the publicly owned Danish Financial Stability Company (FSC), to be either sold or liquidated. Denmark’s declared objective is for the liquidation to be finalized with‑ in a maximum of five years. The Commission found that the liquidation support measures, comprising asset and liability transfers, liquidity facility agreements, credit facilities, capital injections and a loss guarantee, are compatible with the internal market. In particular, the aid is limited to what is necessary to carry out an orderly wind‑up of the bank. Moreover, the fact that the parts of the bank which are not sold will not pursue any new activities but merely phase out on‑going operations will limit potential distortion of competition. Anglo Irish Bank and Irish Nationwide Building Society
On 29 June 2011, the Commission cleared(16) a joint plan for Anglo Irish Bank (Anglo) and Irish Na‑ (15) SA.31945. (16) SA.32504 and C11/2010 (ex N 667/2009).
22
tionwide Building Society (INBS) whereby they will be merged and resolved over a period of 10 years. The two Irish financial institutions received massive state support during the crisis after they overexposed themselves to the commercial loan and property development sector, which eventually caused their downfall. Anglo and INBS together have received a total of €34.7 billion in capital injections to cover the losses on their impaired property loans. Both institutions also benefitted from guarantees and an impaired asset measure. These measures were necessary be‑ cause of the very poor quality of the loans result‑ ing from risky lending practices in the past and the drop in prices on the commercial property market combined with the on‑going crisis on financial markets. After several rescue measures in favour of the two institutions and the submission of several individual restructuring plans by the Irish authori‑ ties, a joint restructuring plan for Anglo and INBS was submitted to the Commission on 31 Janu‑ ary 2011 in the context of the Programme for Sup‑ port for Ireland. The joint plan fulfils the EU criteria on restructur‑ ing aid for banks as: (i) it provides for an orderly resolution of both institutions; (ii) it contains ap‑ propriate measures to ensure that burden‑sharing is achieved by their stakeholders; and (iii) it limits the distortion of competition through the complete exit of Anglo and INBS from the markets in which they operate (mostly Ireland, UK and US). The Com‑ mission has therefore approved all aid measures granted to Anglo, INBS and to the merged entity as restructuring aid and closed its investigation into the restructuring of Anglo. Bank of Ireland
On 11 July 2011, the Commission temporarily ap‑ proved17 the recapitalisation of the Bank of Ireland (BoI) by the Irish authorities of up to €5.35 billion, after a first €3.5 billion restructuring plan was ap‑ proved in July 2010. This follows from the calcula‑ tions of the Irish central bank, in March 2011, of the capital needed to deleverage and meet higher than normal loan‑to‑deposit ratios to be able to re‑ sist stress situations. The prudential capital assessment review carried out by the Irish central bank was required under the Programme for Support for Ireland agreed in November 2010 between the Irish authorities, on one hand, and the EU, ECB and IMF, on the other. The Support Programme requires BoI to increase its capital to meet new regulatory requirements during the period 2011 to 2013. The €85 billion (17 ) SA.33216.
Number 3 — 2011
Competition Policy Newsletter
The Commission found that the measure is nec‑ essary to increase the bank’s solvency ratios and maintain confidence in the Irish financial markets. Therefore, it temporarily authorised the meas‑ ure as emergency aid subject to the submission of a revised restructuring plan. The final approval of the measure is conditional on the plans ensuring: (i) a return to long term viability of the bank; (ii) adequate participation in the restructuring costs by shareholders and subordinated debt holders; and (iii) proper measures to limit the distortion of com‑ petition created by the State support. Allied Irish Banks/Educational Building Society and Irish Life & Permanent Group Holdings
On 15 July 2011 the Commission temporarily approved(18) a recapitalisation worth up to €13.1 billion of an entity resulting from the merger of Al‑ lied Irish Banks and Educational Building Society (AIB/EBS), as well as a recapitalisation worth up to €3.8 billion of Irish Life & Permanent Group Holdings (IL&P) (20 July 2011), both by the Irish authorities. These recapitalisations also arise from the Support Programme’s stress test requirements. The Irish State will purchase ordinary shares (in AIB/EBS for €5.0 billion, in IL&P for €2.3 bil‑ lion), contingent capital notes (in AIB/EBS for €1.6 billion, in IL&P for €0.4 billion) and it will in‑ ject a capital contribution in the banks’ reserves (in AIB/EBS for €6.5 billion, in IL&P for €1.1 billion). As in the Bank of Ireland case, the Commission found the measures to be necessary to increase the banks’ solvency ratios, to enable them to re‑ sist stress situations, and to preserve stability on the Irish financial markets. The Commission will take a final decision on aid to AIB/EBS and IL&P based on the new restructuring plans that Ireland committed to submit in due course to take account of this additional State support. Hypo Real Estate
On 18 July 2011 the Commission approved(19) re‑ structuring aid consisting of capital injections of €10 billion, an asset relief measure with an aid ele‑ ment of about €20 billion, as well as liquidity guar‑ antees amounting to €145 billion for the banking group Hypo Real Estate (HRE). In 2008 HRE faced a severe liquidity shortage af‑ ter the interbank lending markets dried up in the (18) SA.33296. (19) SA.28264 (ex C 15/2009 and N 196/2009).
Number 3 — 2011
aftermath of the Lehman Brothers bankruptcy. In 2009 HRE was nationalised and Germany notified the first version of the restructuring plan. After the opening of an in‑depth investigation triggered by doubts on the bank’s viability and the adequacy of the measures aimed at burden sharing and mini‑ mising distortion of competition, the restructuring plan was finally updated in June 2011. The Commission concluded that the restructuring plan of HRE and its core bank Deutsche Pfand‑ briefbank (Pbb) is liable to restore Pbb’s long‑term viability while ensuring that the bank and its for‑ mer owners adequately contribute to the restructur‑ ing costs and that distortion of competition created by the aid are mitigated. All business activities of the HRE group will be phased out (in particular, budget and infrastructure finance, capital markets and asset management activities), except for the activities of Pbb (essentially public investment and real estate finance). At the end of 2011 Pbb’s ad‑ justed balance sheet size will be around 85% small‑ er than HRE group’s balance sheet size at the end of 2008. This will adequately address distortion of competition created by the massive State support received by the German banking group during the financial crisis. Real economy cases adopted under the Temporary Framework Schemes The Commission authorised the prolongation of certain schemes allowing compatible aid in the form of guarantees in Greece, Latvia, Luxembourg and Spain(20). Furthermore, the Commission decid‑ ed to extend the authorisation of short‑term export credit insurance schemes in Belgium, Denmark and Luxembourg(21).
Decisions taken under Article 107(3)(c) TFEU Rescue and Restructuring Ruse Industry On 13 July 2011 the Commission found(22) that the Bulgarian metal manufacturer Ruse Industry re‑ ceived subsidies in the form of unpaid debts to the State of around €3.7 million. (20) Greece: SA. 33204; Latvia: SA.32051; Luxembourg: SA. 33287; Spain: SA.32986. (21) Belgium: SA.32159; Denmark: SA.32573; Luxembourg: SA. 32846. (22) SA.28903 (ex C 12/2010).
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State AID
EU‑IMF Support Programme comprises €35 bil‑ lion to meet the recapitalisation needs of the finan‑ cial sector and to act as a contingency fund (half of this is provided by Ireland itself).
State AID
The company had been in difficulties for sev‑ eral years. In June 2009, the Bulgarian authorities notified(23) plans to restructure Ruse Industry to the Commission. After the Commission opened an in‑depth investigation in April 2010, Bulgaria with‑ drew the notification in November 2010 and filed for bankruptcy proceedings against Ruse Industry, but the Commission continued its investigation in view of the State’s failure to enforce its debt in pre‑ vious years. It concluded that Ruse Industry ben‑ efitted from State aid, as any other creditor would have sought repayment of the debt sooner and more effectively. This distorts competition vis‑ºà‑vis other companies, which had to operate their businesses without such support and were subject to the dis‑ cipline of credit markets. In order to remedy this distortion, the Commission ordered recovery of aid to Ruse Industry. This was the first time the Commission issued a re‑ covery order to Bulgaria which covers aid granted as from 1 January 2007, when Bulgaria became a member of the EU. The purpose of recovery is to re‑establish the situation that existed on the market prior to the granting of the aid, thereby cancelling or at least alleviating the distortion of competition brought about by the aid. Research, Development and Innovation Institut Français du Pétrole By decision of 29 June 2011(24) the Commission concluded that the unlimited State guarantee grant‑ ed to the Institut Français du Pétrole Énergies Nouvelles (IFP) constitutes compatible State aid as long as the IFP’s economic activities are conducted solely on an ancillary basis and are connected with its main activity, which is public research.
linked to IFP’s main activity of independent pub‑ lic research, the State guarantee had not altered the trading conditions to a degree contrary to EU interests. Furthermore these ancillary activities had a positive impact on the spread of scientific knowledge. Energy & Environment Romanian Green Certificates By decision of 13 July 2011(25 ), the Commission found that Romania’s plan to support the produc‑ tion of energy from renewable energy sources is in line with the 2008 Environmental Aid Guidelines, as it creates clear incentives for increased use of renewable energy, while containing safeguards to limit distortion of competition. The scheme will run until the end of 2016 to help Romania reach the mandatory national renewable energy target set under EU legislation by 2020. Green certificates are granted to electricity produc‑ ers for each MWh generated from wind, hydro, biomass, landfill gas, sewage plant treatment gas or solar. If the energy is produced in high efficiency co‑generation plants, a bonus is applied. The cer‑ tificates issued by the State to the producers can be sold to the energy suppliers on a specific market, independent of the electricity market. The electric‑ ity suppliers must acquire annually a certain num‑ ber of green certificates and if they fail to do so they must pay a penalty. The penalties are collected by the transmission system operator and transferred to the Romanian Environmental Fund, which uses them for support to small individual producers of electricity from renewable sources. Other
The IFP is a research body with legal status of Etab‑ lissement public à caractère industriel et commercial (EPIC). Most of its budget is devoted to non‑economic ac‑ tivities, such as independent R&D, training and dissemination of research results. Its economic ac‑ tivities (contractual research, leasing of facilities, exclusive transfer of technology to its commercial subsidiaries) are very limited and are covered only collaterally by the State guarantee.
Urban regeneration in Northwest England
The Commission considered that IFP derives only limited financial benefits from the guarantee in terms of its economic activities. In particular, IFP conducted contractual research accounting for only a small portion of its activities over the reference period (2006-2009). The Commission found that, insofar as this contractual research was closely
JESSICA is a new financial instrument created by the Commission in cooperation with the Europe‑ an Investment Bank (EIB). In the context of this initiative, the Northwest Regional Development Agency (NWDA) has established and notified to the Commission the Northwest Urban Investment Fund (NWUIF), a £100 million Holding Fund
(23) N 389/2009. (24) C 35/2008 (ex NN 11/2008).
(25) SA.33134. (26) SA.32835.
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On 13 July 2011 the Commission cleared under EU State aid rules(26) an investment fund that will sup‑ port sustainable urban regeneration in the North‑ west region of England, a common interest objec‑ tive promoted by the EU cohesion policy through the Joint European Support for Sustainable Invest‑ ment in City Areas initiative (JESSICA).
Number 3 — 2011
Competition Policy Newsletter
The fund will provide debt and equity investment to promoters and other private investors with a view to fostering urban regeneration projects and unlocking sustainable development in the North‑ west’s urban areas. The NWUIF will target regeneration projects with a financial viability gap that would not be undertak‑ en by the market on its own. Private investors will finance at least 50% of each project, thus creating a leverage effect. Moreover, each project must have a business plan to ensure repayment of the public investment. Incentives for private investors will be limited to the minimum necessary to trigger urban projects and may not exceed a so‑called Fair Rate of Return, established through a competitive process or, where this is not possible, by an independent ex‑ pert. Professional and independent fund managers will ensure prudent investment decisions and the financial sustainability of the funds. The NWUIF will operate as a Holding Fund de‑ ploying resources via investment intermediaries, so‑called Urban Development Funds (UDFs). The selected UDFs (Merseyside UDF and Evergreen UDF) will provide sub‑commercial loans and eq‑ uity to urban regeneration projects that form part of integrated sustainable urban development plans. Each UDF will have to invest its resources by the end of 2015. With this first decision, the Commission has clari‑ fied the guiding principles for the assessment of similar support measures that several Member States are currently envisaging. The Commission has considered that aid granted pursuant to this initiative in the form of sub‑commercial loans and equity capital is compatible with Article 107(3)(c) TFEU as it allows tackling urban regeneration mar‑ ket failures identified in preparatory studies.
No aid
For ten years France had been trying to bolster competition and foster growth in the mobile phone services market by authorising a fourth operator. A number of failed attempts demonstrated that the conditions previously on offer were dissuasive. In 2009 France therefore decided to subdivide the frequencies initially intended for a fourth opera‑ tor into three batches and to launch separate calls for tender. The first, in 2009, was set aside for new entrants. The beneficiary, Free Mobile, was chosen on the basis of a comparative procedure in which qualitative criteria such as the project’s coherence and planned national coverage were assessed. Bid‑ ders also had to agree to pay a spectrum usage fee, comprising a fixed fee of €240 million and 1% of related turnover. The three operators already active in the French market (Orange, SFR and Bouygues Télécom) claimed that the fixed fee was not high enough and thus constituted State aid. The Commission considers that Member States, when allocating frequencies for mobile communica‑ tions, act as regulators and are obliged to take into account the goal of facilitating increased competi‑ tion. Therefore, any loss in revenue for the State when awarding frequencies does not necessarily constitute State aid. Moreover, France had taken sufficient precautions to ensure a competitive out‑ come and the call for tenders was carried out trans‑ parently. Since only one undertaking responded to the call, the Commission noted, moreover, that a bidding procedure would probably have resulted in an even lower fee. For these reasons, the Com‑ mission found that the fourth operator did not benefit from a selective economic advantage which might constitute State aid. Casino Mont Parnès On 24 May 2011 the Commission rejected( 28 ) a complaint from a bidder who had been excluded from the tender process, and found that the sale took place in an open and unconditional bidding procedure and Greece is assumed to have obtained a market conform price. Thus the Commission concluded that the terms of the sale of the Greek State’s 49% stake in Casino Mont Parnès were market conform and therefore free of State aid.
France’s fourth 3G mobile phone licence On 10 May 2011 the Commission rejected com‑ plaints filed by three mobile phone operators al‑ ready active in the French market, as it found that the procedure for awarding France’s fourth 3G mo‑ bile phone licence in 2009 did not involve any State aid. The award was made by a transparent and open procedure in accordance with EU regulations and resulted in a competitive outcome(27 ). (27 ) SA.29191.
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(28) SA.16408 (ex C 15/2010, ex NN 21/2010)
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State AID
which will be managed by the EIB. The NWUIF will receive £50 million funding from the Europe‑ an Regional Development Fund (ERDF) and the equivalent match funding of £50 million from the NWDA.
State AID
The Assignment of Spectrum and the EU State Aid Rules: the case of the 4th 3G license assignment in France By Christian Hocepied and Ansgar Held (1)
1. The French 4th mobile communications licence On 5 May 2011, the Commission decided that the level of the fee charged by the French government in 2009 for spectrum assignment to the fourth mobile operator did not entail any State aid in the meaning of Article 107(1) TFEU (2).
1.1. The licensing of mobile operators in France In 2001, the French authorities launched a call for applications for the provision of mobile telephony licences under the UMTS standard in the so‑called 3G spectrum band (3). The lifetime of the licences was to be 15 years. Contrary to the approach in Member States like the UK and Germany, which awarded 3G licences under an auction procedure, France used a ‘comparative’ tendering procedure (‘beauty contest’ ). Applications were to be rated ac‑ cording to different qualitative criteria, such as scale and speed of network deployment. Moreover, to be eligible, all applicants had to commit to pay an initial spectrum fee of €4.95 billion. The spectrum available for 3G mobile communi‑ cations in France was divided into four lots of 15 Mhz each. Given that there were only three mo‑ bile telephony operators in France at that time, the French authorities were expecting that the tender would lead to new entry and increased competition in the French mobile telephony market. However, only the two largest mobile operators, France Télécom, which a few months later became Orange France (‘Orange’) and Société française du radiotéléphone – SFR (‘SFR’), applied for spectrum licences. Other operators chose not to tender, pri‑ marily because of the high initial fee. Following this partial failure, the French authori‑ ties revised the application conditions, reducing the (1) The content of this article does not necessarily reflect the official position of the European Commission. Responsi‑ bility for the information and views expressed lies entirely with the authors. (2) Commission Decision of 10 May 2011 in State Aid case No SA.29191 (ex CP 258/2009, CP 367/2009 and CP 56/2010) France – 4th UMTS licence (OJ 5.7.2011 C 196 p.6). (3) The frequency bands 1,885-2,025 MHz and 2,110-2,200 MHz, as defined by the World Administrative Radio Con‑ ference in 1992 (WARC-92) for the exploitation of mobile communications technology, such as UMTS.
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initial spectrum fee to €619 million complemented by an annual spectrum fee calculated as a percent‑ age of the turnover generated by the use of those frequencies. At the same time, the validity of the licences was extended to 20 years instead of 15. In December 2001, the French authorities launched the call for applications for the remaining two spec‑ trum lots. However, only the third incumbent, Bou‑ ygues Télécom, applied.
1.2. The retroactive reduction of the initial spectrum fees When the third 3G licence was awarded to Bou‑ ygues Télécom, the terms of the licences of Orange and SFR were aligned with the terms of the licence granted to Bouygues Télécom. Bouygues, howev‑ er, considered that the retroactive reduction of its competitors’ spectrum fees constituted illegal State aid and complained to the Commission. By deci‑ sion dated 20 July 2004 (State aid NN 42/2004), the Commission decided not to raise objections to the fee alignment. It considered that it was legitimate to avoid discrimination between the three competitors on the French mobile market. This decision, ap‑ pealed by Bouygues, was confirmed by the Court of First Instance and the European Court of Justice (4). In 2007 the French government launched a new call for applications, under the same conditions as in 2002, to assign the remaining spectrum and en‑ sure the entry of a fourth mobile communications operator. This time there was an applicant: Free (subsidiary of Illiad). But its application was rejected because it did not commit to pay the initial spec‑ trum fee of €619 million.
1.3. The fourth and fifth calls for applications Following the failure of this process, the French government decided in 2008 to modify the design of the call for applications and consulted the French telecom regulator (Autorité de Régulation des Com‑ munications Electroniques et des Postes – ARCEP) and the highest French administrative court, the Conseil d’Etat, on possible amendments. Follow‑ ing these consultations, the remaining 15 MHz was (4) ECJ, C-431/07 P, Bouygues and Bouygues Télécom v Commission, 2 April 2009; CFI, T-475/04, Bouygues and Bouygues Télécom v Commission.
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Competition Policy Newsletter
While initially several operators expressed inter‑ est (5 ), only Free applied. ARCEP accepted this application on 17 December 2009 and on 13 Janu‑ ary 2010 granted the authorisation. The call for applications for the remaining two lots of 5 MHz was launched on 25 February 2010, with the following award criteria: i) the level of commit‑ ments made to improve the hosting conditions of‑ fered to MVNOs, and ii) the financial bid, i.e. the amount that the applicant committed to pay as ini‑ tial spectrum fee above the minimum of €120 mil‑ lion. SFR made the highest bid (€300 million) and France Télécom/Orange the second highest (€282 million) and were each assigned a spectrum lot.
2. The 4th mobile communications licence 2.1.
The complaints
ARCEP granted the fourth licence to Free on 13 January 2010. However, on 10 August 2009 the Commission had already received a complaint from Orange against the level set for the initial spectrum fee. On 20 November 2009, a complaint was also lodged by SFR. Bouygues initially challenged the selection process only before the French courts. However on 1 March 2010 Bouygues too lodged a complaint with the Commission. According to all complainants, the price difference between the fourth licence and the three first li‑ cences constitutes State aid. They argue that the fourth licence is part of the same procedure which started in 2000. So, in order to respect the principle of non‑discrimination, the initial spectrum fee for the fourth licence should be the same as the price set for the first three operators. They admit that less spectrum was assigned in 2009, but argue that the value of spectrum is not directly proportional to its amount. Taking into account the monetary ero‑ sion since 2001, Orange claims that the initial fee should have been set at €900 million at least. SFR (5) The possible candidates were: Orascom, Kertel, Bolloré, Nulmericable‑VirginMobile. See press articles in Reu‑ ters (22 and 26 October 2009) and LesEchos (29 Octo‑ ber 2009). According to these articles, they cited unfa‑ vourable conditions and uncertainty about the project’s costs to explain why they refrained from putting in a bid.
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argues that the late arrival of the fourth operator on the market cannot justify a reduced initial spectrum fee, because the French mobile market has still big growth potential. Bouygues also considers that the initial spectrum fee was set below its market value, which it estimates on the basis of two different cal‑ culation methods. On 28 June 2010, the Commission communicated its preliminary findings to the complainants, in‑ forming them that the granting of the fourth mo‑ bile licence had not involved a selective advantage to the operator concerned and did not constitute State aid within the meaning of Article 107 (1) TFEU. All three complainants reacted, maintain‑ ing their claims. They repeated that the spectrum for the fourth licence has an economic value and that assigning it on terms that do neither reflect this economic value is, by definition, State aid. They criticized the Commission for not having discussed the spectrum value estimates they had provided, nor the methods used for these estimates. They maintained that in any case, the Commission should have reviewed in detail the hypotheses and calculations used by the French government to set the initial fee. SFR added that Free would likely also have agreed with the fee, if set at for example €410 million. There was no justification to reduce the initial fee by 60% in comparison with 2001. Or‑ ange and Bouygues emphasized that if the initial fee had been reduced to make sure that a fourth entrant would apply, it would corroborate the exist‑ ence of State aid as an incentive to entry.
2.2. The position of the French government The French authorities provided several arguments to justify the different initial spectrum fees set in 2001 and 2009. First, they said that the evolution of market conditions since 2001 required lowering the initial spectrum to make market entry possible. Second, the reduced spectrum also justifies a low‑ er spectrum fee. With less spectrum an operator must limit the number of customers, reduce quality or invest in additional antennas. France considers that this approach is in line with the Connect Aus‑ tria judgment in which the Court explained that the economic value of licences must be determined “taking account inter alia of the size of the different frequency clusters allocated, the time when each of the operators con‑ cerned entered the market and the importance of being able to present a full range of mobile telecommunications systems” (6). At the same time, the French authorities empha‑ sized that the initial spectrum fee (€240 million) had been set on the basis of objective financial studies (6) Case C-462/99, Connect Austria [2003] ECR I-5197, para 93.
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split into three lots of 5 MHz each. The first lot was reserved for a new entrant. The initial one‑off fee for the first UMTS spectrum lot was fixed at €240 million by Decree 2009/948 of 29 July 2009. In ad‑ dition, the nine qualitative criteria used in 2001 for the award procedure, such as the credibility of the project, the business plan, territorial coverage and the type of contracts proposed to mobile virtual net‑ work operators, were maintained to rank the bids.
State AID
analysing the fees paid for 3G licences in other Eu‑ ropean countries as well as stock market data and simulations with the discounted cash flow method. For example, the study by Professor Mucchielli (Sor‑ bonne University) estimated the value of the spec‑ trum at €200-250 million. The French authorities also sought a valuation from the independent com‑ mittee in charge of the government’s patrimonial interests (Comité des Participations et Transferts CPT), assisted by HSBC bank. They estimated the value of the spectrum at €240 million, the amount eventually used by the French government.
2.3. The judgment of the French Council of State In parallel with the State aid complaints to the EU Commission, SFR and Bouygues had asked the French Conseil d’Etat to annul Decree 2009-948 of 29 July 2009 setting the initial spectrum fee, mainly on grounds of national administrative law. On 12 October 2010, the Conseil d’Etat rejected all their claims. It took the view that treating existing operators and the entrant identically would have constituted discrimination against the latter and a barrier to entry in the market. Second, the Conseil rejected the argument that technological develop‑ ments in recent years (resulting in lower equipment costs) would have been favourable to an entrant and would effectively neutralize the disadvantages of its later entry into the market. Moreover, the Conseil found that since 2000 the difference in the situa‑ tions of the incumbent operators and a new entrant had changed to the detriment of a new entrant. Pursuing its public policy objective of fostering competition on the French mobile telephony mar‑ ket, the French government was, according to the Conseil, therefore fully justified in updating the regime initially foreseen for entrants. Furthermore, the Conseil rebutted the criticism that the spectrum would have a value for Free higher than the initial spectrum fee, since the tender conditions set for all by the decree contemplated the potential value of the spectrum for a theoretical entrant and obviously aimed to entice more applicants than only Free. Fi‑ nally, the Conseil observed, somewhat in passing, that “For the same reasons, the grant of a 3G licence to a fourth operator on different financial conditions in compari‑ son to those of the other three licensees does not constitute state aid within the meaning of EU law”. Legal questions raised by the complaints The complaints raise two important State aid is‑ sues: i) is compliance with the EU Directives har‑ monizing spectrum assignment procedures enough to avoid State aid, and ii) if a parallel assessment is required, should the Commission second guess the “objective” value of spectrum, to determine whether
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Member States are foregoing revenues when setting spectrum fees? The case also raised a further issue, given that the highest administrative jurisdiction in France made a finding of the absence of State aid.
2.4.
Interplay with EU Directives
In Decision NN 76/2006 – Czech Republic ( 7 ), the Commission acknowledged that the EU State aid rules did not require Member States to charge a market price when assigning spectrum for mo‑ bile communications services, as under Article 7(4) of Directive 2002/20/EC of 7 March 2002 on the authorisation of electronic communications net‑ works and services (Authorisation Directive) Mem‑ ber States have the choice between competitive (i.e. auctions) and comparative selection procedures (‘beauty contest’) for the assignment of spectrum. Article 5 of the Authorisation Directive moreover provides that rights of use must be granted “through open, transparent and non‑discriminatory procedures”. Where the Member States grant rights of use for radio frequencies, under Article 7 of the Directive they are allowed to impose fees “which reflect the need to ensure the optimal use of these resources”. In this case, the fees, under Article 13 of the Directive, must be “objectively justified, transparent, non‑discriminatory and proportionate in relation to their intended purpose and shall take into account the objectives in Article 8 of Directive 2002/21/EC (Framework Directive)”. Under the EU regulatory framework, the Member States are thus entitled to review and even differentiate spectrum fees, particularly if this is conducive to greater entry and competition in the market. The question is whether, when a Member State complies with all these conditions, it is still possible that the procedure provides a selective economic advantage to the beneficiary in the meaning of Ar‑ ticle 107(1) TFEU. As in the Czech precedent, the Commission did not consider that the mere fact that the EU regulatory framework had been complied with, and that the spectrum had been assigned under an open proce‑ dure, based on transparent, objective, proportional and non‑discriminatory criteria, ipso facto excluded the possibility that the tender procedure might have provided an economic advantage and/or distorted competition.
2.5.
Determination of spectrum value
There is no market for spectrum and thus no ‘mar‑ ket price’. Spectrum is a public resource. Member States grant temporary rights of use to specific parts of the spectrum, according to administrative (7) http://ec.europa.eu/competition/state_aid/register/ii/ doc/NN-76-2006-WLWL‑en-20.12.2006.pdf.
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Competition Policy Newsletter
However, under the EU regulatory framework, Member States may assign such spectrum on the ba‑ sis of criteria other than the maximisation of income from spectrum fees. Member States may assign spec‑ trum also on the basis of qualitative criteria and thus waive financial revenues, as it were, in exchange for other policy objectives such as cheaper retail tariffs, better geographical coverage, more advanced ser‑ vices etc. This might result in economic externali‑ ties and social benefits that are not reflected in the amounts collected in the form of spectrum fees. The EU State aid provisions must however be com‑ plied with where a Member State changes the as‑ signment procedures or spectrum fees over time. Reducing spectrum fees may constitute a waiver of state resources, which is one of the cumula‑ tive conditions of Article 107(1) TFEU. In such cases, the Commission needs to examine whether the measure confers a selective advantage to the assignee (8). This was the issue in the Czech prec‑ edent, in the Bouygues case and in the complaints discussed here. In the Czech precedent, the Commission re‑ viewed the reasons why similar procedures in 2001 and 2005 resulted in different spectrum fees. It found that the different fees resulted from chang‑ es in market and economic circumstances (9). The Commission concluded that there had been no dis‑ crimination and for that reason there had been no advantage in the sense of Article 107(1) TFEU, and thus no aid. The Bouygues case concerned the retroactive re‑ duction of the initial spectrum fees that had been agreed by Orange and SFR in 2001. The Commis‑ sion found that the prior award of licences to Or‑ ange and SFR did not give them a selective advan‑ tage of a temporal nature given the fact that they were not yet using their licences when Bouygues obtained its own licence. (8) See for example Case T‑475/04 Bouygues and Bouygues Télécom v Commission [2007] ECR II‑2097, point 111: “the fact that the State may have waived resources and that this may have created an advantage for the beneficiaries of the reduction in the fee is not sufficient to prove the existence of a State aid incompatible with the common market, given the specific provisions of Community law on telecommunications in the light of common law on State aid. The abandonment of the claim at issue here was inevitable because of the general scheme of the system, apart from the fact that the claim was not certain …” (9) Point 34.
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In the case at stake, the facts were significantly dif‑ ferent. Whereas in the Bouygues case both calls for applications were part of the same procedure, the 2009 call was launched under different legal rules and concerned a different amount of spec‑ trum. The initial spectrum fee was not based on the same methodology as in 2001, but on a new set of studies and methodologies. A comparison of the 2001 and 2009 spectrum fees was therefore not relevant. The Commission no‑aid Decision of 5 May 2011 therefore assesses on its own merits the initial spectrum fee set by the French govern‑ ment for the fourth licence, without taking the 2001 prices as a benchmark. The starting point of the assessment is that not only auctions allow market prices to be determined. Comparative procedures (‘beauty contests’) also lead to market outcomes, given that commitments made under the qualitative award criteria have also an economic cost for the applicant. The ‘price’ paid for the spectrum is thus both the spectrum fee and the cost of the commit‑ ments under the qualitative criteria. In its Decision, the Commission noted for example that Free made more ambitious commitments in terms of quality and coverage (10) than the minimum in the call for applications. The Decision lists several elements indicating that the award procedure for the fourth licence actually led to a market outcome: a) transparent process: the government launched a call for applications allowing any interested party, apart from the incumbents, to make a bid. None of the other operators that initially ex‑ pressed an interest complained that they were excluded from the tender; b) the failed call for applications of 2007 with an initial spectrum fee of €619 million shows that the willingness to pay, and thus the market value for potential entrants, was lower. Unlike incum‑ bent operators, the new entrant would have to face competitors with an installed mobile cus‑ tomer base. Moreover the market was in the meantime reaching saturation. Obtaining market share for an entrant would require an aggressive pricing strategy, which reduces profit margins. With the entry of the fourth operator, competi‑ tion would increase and the economic value of each mobile licence might therefore be reduced; c) setting the spectrum fee too high in “beauty contests” will exclude potential applicants and favour applicants already controlling assets that can be used to deploy mobile communications networks. Potential applicants’ willingness to pay often differs significantly. Applicants have (10) See points 71 and 72.
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procedures. In certain Member States, rights of use can, after a specific time, be transferred. Generally there is no secondary market in rights of use, which would allow determining easily the value of rights of use. On the other hand, spectrum for the pro‑ vision of mobile communications services has an economic value.
State AID
different reservation prices (11) because their respective cost of fulfilling qualitative require‑ ments do differ (for example, certain applicants already have infrastructure and an installed cus‑ tomer bases, whereas others do not); d) the French authorities have carried out a thor‑ ough analysis to determine the market value of the spectrum. The assumptions used in the studies for the French government appear not out of line with the market consensus, and e) the fees that SFR and Orange proposed for the remaining two lots of 5 MHz in 2010 were in the same range as the initial fee set for the fourth licence. The outcome of these tender procedures suggest that if the French govern‑ ment had used an auction to assign the fourth licence, it would probably have yielded a lower fee since the incumbent operators were not al‑ lowed to bid for the fourth licence. The procedure having led to a competitive out‑ come, the Decision concludes that no selective ad‑ vantage was granted to the assignee.
2.6. The no‑aid finding by the French Conseil d’Etat In its judgment of 12 October 2010, the French Conseil d’Etat found that “the grant of a 3G licence to a fourth operator in different financial conditions in comparison to those of the other three licensees does not constitute state aid within the meaning of EU law” mak‑ ing a final finding regarding the interpretation of Article 107(1) TFEU. The ECJ has explicitly stated that, as is the case for the Commission, national courts have powers to interpret the notion of State aid. However, where doubts exist as to the qualification of State aid, na‑ tional courts may ask for a Commission opinion un‑ der section 3 of the Commission notice on the enforcement of State aid law by national courts (12). They must refer the matter to the ECJ for a preliminary ruling under Article 267 TFEU when their decisions regarding an interpretation of EU law can no longer be appealed. The no‑aid finding by the Conseil d’Etat could have brought about a contradiction between its fi‑ nal judgment and a Commission Decision if the lat‑ ter subsequently had reached the opposite conclu‑ sion. Under the case law of the Court (13), the no‑aid (11) The “reservation” price is the maximum price a bidder would be willing to pay. (12) OJ 9.4.2009, C 85 p. 1 http://eur‑lex.europa.eu/LexUriServ/ LexUriServ.do?uri=OJ:C:2009:085:0001:0022:EN:PDF. (13) See for example Judgment of 18 July 2007, Case C-119/05, Ministero dell’Industria, del Commercio e dell’Artigianato v Luc‑ chini SpA, formerly Lucchini Siderurgica SpA.
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finding of the Conseil would then cease to benefit from the principle of res judicata. Whether such na‑ tional decision would constitute exceptional circum‑ stances that could be deemed sufficient to create le‑ gitimate expectations is not completely clear under the current case law of the Court of Justice (14). In this case, the finding of the Conseil d’Etat had no consequence because the Commission’s as‑ sessment confirmed the conclusion of the French Court. The lack of coordination in this case may however be a symptom of a more general problem, which might need to be dealt with in the future.
3. Conclusion The Commission decided not to open a formal in‑ vestigation under Article 108(2) TFEU. This is re‑ quired when the Commission has serious doubts as to whether aid is compatible with the internal mar‑ ket, such as when complex calculations are neces‑ sary. However this case did not require complex calculations, as the tender process chosen has led to a market outcome. Moreover, there were precedents and case‑law. In addition, all three incumbents had lodged complaints. All stakeholders therefore had the opportunity to express their views, doing away with the need to open a formal investigation. In addition, there was no need to obtain more information than the information already contained in the studies used by the French government and the alternative studies commissioned by the complainants. Moreover, the opening could have delayed the deployment of the fourth mobile operator in France and postponed fur‑ ther competition, to the detriment of the consumer. None of the complainants challenged the Commis‑ sion Decision, which suggests that both the reasons on which it is based and the decision not to open a formal investigation were robust and do not give rise to much legal criticism. The Commission Decision on the French fourth mobile communications licence is not likely to be the last regarding the level of spectrum fees. Given that the EU Regulatory Framework for electronic Communications sets the promotion of competi‑ tion as an important objective, there may be more cases of incumbent operators complaining about ‘lighter’ conditions for later entrants. The Commis‑ sion might even have to examine such cases under Article 107 (3) c TFEU, given that the EU Frame‑ work give broad discretion to Member States to adopt pro‑competitive licensing terms.
(14) See, inter alia, Case C-298/00 P Italy v Commission [2004] ECR I‑4087, paragraph 75.
Number 3 — 2011
Competition Policy Newsletter
State AID
The Resolution of Anglo Irish Bank and Irish Nationwide Building Society by Christophe Galand, Minke Gort (1)
1. Introduction Of the banks that have received State aid during the financial crisis, few have received as much aid relative to their risk‑weighted assets as Anglo Irish Bank (Anglo) and Irish Nationwide Building Soci‑ ety (INBS). Both institutions failed on a massive scale following their speculative lending during the Irish commercial property boom and the onset of the financial crisis at the end of 2008. According to the Communication on the return to viability and the assessment of restructuring meas‑ ures in the financial sector in the current crisis un‑ der the State aid rules (2) (Restructuring Communi‑ cation), an orderly winding‑up should be considered for banks that cannot be restored to long‑term vi‑ ability. The case of Anglo and INBS is one of the few Commission decisions to apply the Restruc‑ turing Communication to the resolution of failed institutions. The choice of an aid instrument, especially during the financial crisis, should be carefully considered with a view to keeping the aid well targeted and to a minimum, in accordance with the Commis‑ sion Communication on the application of State aid rules to measures taken in relation to financial insti‑ tutions in the context of the current global financial crisis (3) (Banking Communication). The response of the Irish authorities to the failing of the banks at the start of the crisis was to guaran‑ tee many of the liabilities of the Irish banks, includ‑ ing Anglo and INBS, without knowing the depth of the difficulties these institutions were facing. As a result, private debt was transformed into public debt, which put pressure on the Irish Sovereign. In the end, the cost to the Irish state of the mas‑ sive recapitalisations necessary to avoid a disorderly failure of Anglo and INBS indirectly forced it to request the European Union and the International Monetary Fund for assistance.
2. Beneficiaries At the beginning of the crisis, around the time of the introduction of the blanket guarantee on (1) The content of this article does not necessarily reflect the official position of the European Commission. Responsi‑ bility for the information and views expressed lies entirely with the authors. (2) OJ C 195 of 19.8.2009, p. 9. (3) OJ C 270 of 25.10.2008, p. 8.
Number 3 — 2011
liabilities in Irish banks by the Irish authorities in September 2008, Anglo had a balance sheet of ap‑ proximately EUR 100 billion, around 50% of Irish GDP. At the time, Anglo was one of the largest Irish banks in terms of balance sheet size. In terms of its business model, Anglo was a ‘monoline’ bank specialising in commercial real estate lending in three core markets: Ireland, the United Kingdom and the United States. Its market share in lending to Irish firms (both property and non‑property lending) was around 20% in March 2009. The mar‑ ket share in UK property lending was estimated at 3.3% for that year. Risk management in Anglo was not sufficiently developed and allowed uncon‑ trolled balance sheet growth combined with risky lending practices (such as high loan‑to‑value lend‑ ing and interest‑only lending), in particular dur‑ ing the years of the Irish property boom. Between 1984 and 2008, the bank’s balance sheet had a com‑ pound annual growth rate (CAGR) of approximate‑ ly 30%. Anglo funded the growth of its commercial property loan book almost entirely by wholesale funding, its market share in the Irish retail sav‑ ings market in September 2009 being 6%, while in the UK retail saving market, its market share was around 1%. INBS by the end of 2008 had a balance sheet of around EUR 14 billion, making it the sixth largest Irish domestic bank by balance sheet size. INBS, as a building society, originally focussed on provid‑ ing retail mortgages and retail savings products to its customers. In the years preceding the financial crisis, INBS aggressively increased its activities in risky commercial property lending, which became its main activity. Its exposure to land and prop‑ erty development loans grew significantly in the period of the Irish property boom, with a CAGR for commercial lending approximately three times higher for the period from 2001-2009 compared to the CAGR for its retail mortgage lending for the same period. INBS’s total loan book at the end of 2008 amounted to EUR 11 billion, divided be‑ tween around EUR 8 billion in commercial land and property development loans and around EUR 3 billion in retail mortgages. Lending by INBS was funded by EUR 6.7 billion in deposits as at the end of 2008, while the remainder was funded by whole‑ sale funding. The business models of both institutions proved to be unsustainable and led to unprecedented fi‑ nancial difficulties and losses in the context of the
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global financial crisis. Both were overly concen‑ trated on commercial property lending, leading to excessive exposure to that sector of the economy which was particularly hard‑hit during the finan‑ cial crisis as commercial property prices decreased peak‑to‑trough by more than 60% in Ireland. In ad‑ dition, in both cases lending was partly financed by wholesale funding, a source of funding which dried up as a result of the financial crisis. Since the beginning of the financial crisis, Anglo and INBS have registered heavy losses mainly driven by im‑ pairment charges on their respective commercial loan books. As the difficulties being experienced by Anglo started to surface, the Irish authorities decided to nationalise the institution in January 2009. INBS was de facto nationalised following the first recapi‑ talisation it received in March 2010.
3. State measures The massive failure of both Anglo and INBS led to a bail‑out of both institutions by the Irish taxpayer on an equally grand scale. Both institutions benefit‑ ted from a guarantee on the majority of their liabili‑ ties (at least 75%) through the Credit Institutions Financial Support Scheme (CIFS) (4) from Septem‑ ber 2008 to September 2010. The CIFS scheme was replaced by the Eligible Liabilities Guarantee scheme (ELG), (5) which ensured that a consider‑ able amount of the liabilities of Anglo and INBS continued to be guaranteed. Anglo and INBS also benefitted from a guarantee on short‑term liabili‑ ties (6). In addition, Anglo received a guarantee on certain of its off‑balance sheet liabilities ( 7 ). (4) Commission Decision in Case NN 48/2008, Ireland - Guar‑ antee Scheme for banks in Ireland, OJ C 312, 6.12.2008, p. 2. (5) See Commission Decision in Case N 349/2009, Ireland Credit Institutions Eligible Liability Guarantee Scheme (OJ C 72, 20.3.2010, p. 6), subsequently prolonged until 30.6.2010 by Commission Decision in Case N 198/2010, Ireland - Pro‑ longation of the Eligible Liabilities Guarantee Scheme (OJ C 191, 15.7.2010, p. 1), extended until 31.12.2010 by Commission Decision in Case N 254/2010, Ireland – Extension of the ELG scheme until 31 December 2010, (OJ C 238, 03.9.2010, p. 2), again extended until 30.6.2011 by Commission Deci‑ sion in Case N 487/2010, Extension of the ELG scheme until June 2011, (OJ C 159, 28.5.2011, p.5), subsequently ex‑ tended until 31.12.2011 by Commission Decision in Case SA.33006, Prolongation of the ELG scheme until December 2011, (OJ C 317, 29.10.11, p. 5) and extended until 30.6.12 by Commission Decision in Case SA.33740, Extension of ELG scheme until June 2012, not yet published. (6) Commission Decision in Case N 347/2010, Prolongation of the guarantee for certain short‑term liabilities and interbank depos‑ its, (OJ C 37, 5.2.2011, p. 4.). (7) Comm ission Decision i n Case NN 35/2010 (ex N 279/2010), Ireland -Temporary approval of the third recapitali‑ sation in favour of Anglo Irish Bank, (OJ C 290, 27.10.2010, p. 4.).
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The two institutions also received six recapitalisa‑ tions between them, four to Anglo for a total of EUR 29.3 billion (8) and two to INBS for a total of EUR 5.4 billion (9). In addition, both benefitted from an asset relief scheme, which allowed them to transfer a significant part of their commercial land and property development loans in tranches to the National Asset Management Agency (NAMA) at a discount (10). Anglo transferred EUR 35 billion in loans at an average discount above 50%, while INBS transferred EUR 8.9 billion in loans at an av‑ erage discount of 64%. It has to be noted that the size of the recapitalisations received by both institu‑ tions was partly due to the losses resulting from the transfer of the commercial land and property devel‑ opment loans at a loss to NAMA. Finally, both in‑ stitutions, in order to ensure they could fund their balance sheet, received Emergency Liquidity Assis‑ tance (ELA) from the Irish Central Bank, which was partly guaranteed by the Irish State. Both Anglo and INBS were required to submit re‑ structuring plans following the various rescues. An‑ glo successfully submitted three restructuring plans (one end 2009 and two in 2010) while INBS sub‑ mitted one restructuring plan in June 2010. Howev‑ er, following the decision by the Irish authorities to merge Anglo and INBS with a view to working out the respective loan books, the authorities submit‑ ted a joint restructuring plan for both institutions at the end of January 2011. The joint restructuring plan sets out how the Irish authorities plan to re‑ solve Anglo and INBS over a period of 10 years. The joint restructuring plan is based on the merger of Anglo and INBS into the Irish Bank Resolution Corporation (IBRC), after the sales of their respec‑ tive deposit books. IBRC is a licensed financial institution, fully regulated by the Central Bank of Ireland and State owned. IBRC will work‑out the legacy commercial property loan book of Anglo over a period of ten years through redemptions and sales and work‑out the retail mortgage book of (8) See Commission Decision in Case N 356/2009, Recapi‑ talisation of Anglo Irish Bank by the Irish State, (OJ C 235, 30.9.2009, p. 3.), Commission Decision in Case NN 12/2010 and C11/2010 (ex N 667/2009), Second rescue measure in favour of Anglo Irish Bank, (OJ C 214, 7.8.2010, p. 3), footnote 7 above for the third recapitalisation and Commission Decision in Case SA.32057 (2010/NN), Ire‑ land - Temporary approval of the fourth recapitalisation and guar‑ antee in respect of certain liabilities in favour of Anglo Irish Bank, (OJ C 76, 10.3.2011, p. 4.). (9) See Commission Decision in Case NN 11/2010, Ireland Rescue measures in favour of INBS, (OJ C 143, 2.06.2010, p. 23.) and Commission Decision in Case NN 50/2010 (ex N 441/201), Ireland - Second emergency recapitalisation in favour of Irish Nationwide Building Society, (OJ C 60, 25.2.2011, p. 6.). (10) Commission Decision in Case N 725/2009, Ireland – Estab‑ lishment of a National Asset Management relief scheme for banks in Ireland – NAMA, (OJ C 94, 14.4.2010, p. 10.).
Number 3 — 2011
Competition Policy Newsletter
4. Procedural steps The Commission has taken nine decisions for the two institutions combined. This number does not include the decisions taken by the Commission with regard to the schemes that Anglo and INBS have benefitted from (CIFS, ELG and NAMA). For Anglo, the decisions include: approval of a rescue recapitalisation on 14 January 2009 that was not carried out; the Anglo nationalisation decision on 14 February 2009 (the Commission found there was no State aid involved); the four decisions on the successive rescue recapitalisations of Anglo car‑ ried out on 26 June 2009, 31 March 2010, 10 Au‑ gust 2011 and 21 December 2010; and the final decision approving the joint restructuring plan on 29 June 2011. The decision of 31 March 2010 also included an opening of the formal investigation procedure into the first restructuring plan for An‑ glo, while the decision authorising the fourth recap‑ italisation also covered the guarantee on short‑term deposits and certain off‑balance sheet liabilities. In the case of INBS, two decisions were taken re‑ garding its recapitalisation, on 30 March 2010 and 21 December 2010. The decisions were taken on the basis of Article 107(3)(b) of the Treaty on the Functioning of the European Union.
5. Assessment of the resolution of Anglo and INBS The final decision adopted by the Commission ap‑ proving the restructuring of Anglo and INBS was based on the joint restructuring plan submitted by the Irish authorities on 31 January 2011. The Com‑ mission assessed this plan on the basis of the Re‑ structuring Communication. However, instead of assessing whether Anglo and INBS would be re‑ turned to viability, the Commission in this case had to assess whether the resolution of the two institu‑ tions was in line with the Restructuring Communi‑ cation. In addition, the Commission had to assess whether there had been sufficient burden‑sharing and whether there were sufficient measures in place limiting the distortion of competition.
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5.1. Orderly resolution of Anglo and INBS Compared to the assessment of a financial institu‑ tion’s return to viability, the analysis of a bank’s res‑ olution is relatively straightforward. The Commis‑ sion in these cases verifies whether a liquidation, wind‑down or resolution is carried out in an orderly manner, taking into account chapter 5 of the Bank‑ ing Communication with regard to limiting moral hazard, the period required for the resolution, the activities carried out by the institution during the resolution and burden‑sharing. In the case of Anglo and INBS, the Commission concluded that the work‑out of the loan books of Anglo and INBS was carried out in an orderly man‑ ner, as the loan book will be reduced through the sale of loans and restructuring and redemption of the remainder over a period of ten years. The entity will have all the resources needed to carry out the work‑out.
5.2.
Own contribution/burden‑sharing
In order to avoid moral hazard and to ensure that the aid necessary for a resolution is limited to the minimum, the Commission has to verify whether the own contribution by the institution and bur‑ den‑sharing with the creditors has been sufficient. The guidance provided by the Restructuring Com‑ munication is therefore also relevant for resolution and liquidation cases. In the case of Anglo and INBS, despite the massive aid already provided to both institutions, the Com‑ mission could still conclude that the aid was limited to the minimum on the basis that Anglo and INBS would both cease to operate on the market, and be‑ cause the aid is strictly limited to financing the eco‑ nomic activities needed to work‑out the loan books. As for burden‑sharing, it has to be noted that both the shareholders in Anglo and the members of INBS were totally wiped out and will not benefit from their economic ownership of either institu‑ tion. The subordinated debt holders in both institu‑ tions furthermore contributed to the restructuring through the various liability management exercises conducted by Anglo and INBS.
5.3 Measures limiting the distortion of competition The Restructuring Communication says that meas‑ ures limiting the distortion of competition should be proportional to the aid received and the distor‑ tion of competition in the relevant markets. An‑ glo and INBS both received massive amounts of aid; Anglo received 43.9% of aid relative to its risk 33
State AID
INBS. IBRC is not engaging in any new lending or other new activities. IBRC benefits from a continu‑ ation of the guarantees on the remaining deposits, the guarantee on certain off‑balance sheet liabili‑ ties, the State guarantee on part of the ELA fund‑ ing it receives and a guarantee on outstanding ELG wholesale funding. No further recapitalisation apart from those already received by Anglo and INBS is foreseen in the base case.
State AID
weighted assets (RWA) and INBS received 59% of aid relative to its RWA (11). These amounts jus‑ tify far‑reaching measures to limit the distortion of competition. In the assessment, the fact that both Anglo and INBS were to be resolved over time was taken into account, as this leads to a complete exit from the market by both institutions. In other words, the aid does not allow a competitor to stay on the market; it only serves to finance the orderly exit of both in‑ stitutions. Furthermore, several commitments were provided by the Irish authorities to ensure that An‑ glo and INBS (IBRC) will not carry out any eco‑ nomic activities apart from the activities necessary to work‑out the loan book. New lending is restrict‑ ed to a minimum and must lead to an increase in the net present value of the loan concerned, while IBRC will also not be able to collect new deposits and will reduce the deposits it has on its balance sheet over time. The complete exit of Anglo and INBS from the market, combined with the com‑ mitments, provided the Commission with suffi‑ cient assurance that the distortions of competition would be limited.
6. Conclusion This is one of the few resolutions of banks ap‑ proved by the Commission. It is important because it shows how the Commission assesses a com‑ plete resolution or wind‑down of a bank. This case also shows how the principles in both the Banking Communication and the Restructuring Communication interact in terms of the assess‑ ment of a wind‑down and the assessment of bur‑ den‑sharing and measures limiting the distortion of competition. In addition, this case illustrates which kinds of commitments are necessary to ensure that the distortions of competition during the wind‑down phase are limited to a minimum. This case also underlines the fact that Member States must carefully select the aid measure used to rescue one or several financial institutions. To do this, they need to have accurate knowledge of the depth of the difficulties experienced by the institu‑ tions they are trying to save before providing any form of State aid. Indeed, in this case, having guar‑ anteed most of the liabilities of Anglo and INBS and having taken the role of sole creditor of Anglo in place of private creditors, the Irish State could not let it fail, even when it turned out that the res‑ cue would be extremely costly.
(11) Only taking into account the recapitalisations and asset relief measure.
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Number 3 — 2011
Competition Policy Newsletter
State AID
First JESSICA decisions: approach and implications by Eglė Striungytė (1)
1. Introduction The Commission has made increasing use of finan‑ cial engineering instruments (2) in the 2007-2013 programming period. These instruments comple‑ ment traditional grant funding and aim to make EU cohesion policy efficient and sustainable. The European Commission (Directorate‑General for Regional Policy) in co‑operation with the European Investment Bank (EIB) Group and the Council of Europe Development Bank have jointly developed a novel initiative, the Joint European Support for Sus‑ tainable Investment in City Areas (JESSICA). JESSICA allows Member States to invest Structural Fund re‑ sources in revolving funds to support sustainable urban development and regeneration. (3) The increasing use of financial engineering in‑ struments in EU cohesion policy explains the im‑ portance of two first Commission decisions on JESSICA cases. Both were adopted directly on the basis of Article 107(3)(c) TFEU. The first de‑ cision on The Northwest Urban Investment Fund (JES‑ SICA) was adopted on 13 June 2011, followed by the Andalucía Jessica Holding Fund decision of 19 Oc‑ tober 2011. (4) The Commission carried out an in‑depth assessment applying the balancing test to assess the positive effects against potential negative effects of the aid.
of mitigating them, thus creating inefficient market structures and potential competition distortions.
2. Main facts of the cases 2.1.
Common features
Common characteristics of the cases, such as the funding architecture, the investment instruments and monitoring requirements, are defined in the Structural Fund Regulations governing financial engineering instruments (collectively referred to as the SF Regulations). (5) Under JESSICA, Struc‑ tural Funds must be deployed through Urban De‑ velopment Funds (UDFs) for equity, loans and/ or guarantees provided to projects included in an integrated plan for sustainable urban development (IPSUD). The UDFs are investment vehicles that channel funds to projects and do not carry out ac‑ tivities themselves. In addition to the Structural Fund resources, the UDFs may also attract private funding. Optionally, the Member States can use Holding Funds (HFs), which are funds set up to invest in several UDFs.
On principle, State aid granted through revolving financial engineering instruments enables Member States to deliver policy objectives with less and bet‑ ter targeted State aid that focuses on enhanced fi‑ nancial leverage, investment risk mitigation and the involvement of financial intermediaries. However, State aid control also needs to address potential competition risks. In particular, there is a risk of crowding out other sources of funding and trans‑ ferring all the risks to the public investor instead
The terms and conditions for public contributions are contractually defined and must comply with the relevant EU and national rules, including State aid rules. In both cases, funding agreements were signed at two levels: (i) the Funding Agreement between the Member State and the HF manager, which includes provisions for appraising and se‑ lecting UDFs, and (ii) the Operational Agreements between the HF manager and a number of UDF managers, whereby the HFs contractually oblige the UDFs to respect certain investment criteria and governance principles. The SF Regulations define the key elements to be included in the above fund‑ ing agreements. (6)
(1) The content of this article does not necessarily reflect the official position of the European Commission. Responsi¬bility for the information and views expressed lies entirely with the author. (2) Repayable instruments, such as equity, loans and guarantees. (3) For more information, see: http://ec.europa.eu/region‑ al_policy/thefunds/instruments/jessica_en.cfm http:// www.eib.org/products/technical_assistance/jessica/back‑ ground/index.htm?lang=en (4) Case SA.32835/2011 Northwest Urban Investment Fund (OJ C 281 24.09.2011, p. 7-8), case SA.32147/2011 Andalucía Jessica Holding Fund (the public version of this decision is not yet available).
(5) Financial engineering instruments pursuant to Article 44 of Regulation (EC) No 1083/2006, (the ‘General Regula‑ tion’), Articles 3(2)(c), 4(1), 5(1)(d) and 6(2)(a) of Regula‑ tion (EC) No 1080/2006, (the ‘ERDF Regulation’), Ar‑ ticle 11(1) of Regulation (EC) No 1081/2006, (the ‘ESF Regulation’) and Articles 43 to 46 of Regulation (EC) No 1828/2006, (the ‘Implementing Regulation’). (6) Articles 43(3) and 44 of the Implementing Regulation set out provisions relating to investment policy and instru‑ ments, the investment process, governance rules, fund managers and fees, monitoring and reporting.
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State AID
Both HFs and UDFs are managed by independent and professional fund managers who must have a track record and experience, and comply with regulatory and best practices. In both cases, the Member States appointed the EIB as a HF manager through a direct contract award, i.e. outside public procurement rules due to the special status of the EIB as an EU body. ( 7 ) In line with the SF Regula‑ tions, the EIB procured the UDFs through a trans‑ parent and competitive tender process by publish‑ ing a call for expressions of interest in the Official Journal of the EU and on the EIB’s website. The JESSICA investment approach essentially bal‑ ances two main considerations. It seeks to (i) pro‑ mote the policy objective of sustainable urban de‑ velopment by tackling “the high concentration of economic, environmental and social problems af‑ fecting urban areas” (8) and (ii) ensure financial selfsustainability so that the funds generate sufficient financial return to remain operationally viable. While not acting as a market economy investor (the funds will make sub‑commercial investments to maximise policy impact), the funds must generate positive returns to repay the initial public invest‑ ment, albeit below market rates.
2.2.
Northwest Urban Investment Fund
The UK authorities established the Northwest Urban Investment Fund (NWUIF) in Novem‑ ber 2009 in partnership with the EIB, appointed as NWUIF Manager, to support sustainable de‑ velopment in the urban areas of northwest Eng‑ land. GBP 100 million was contributed to the NWUIF - GBP 50 million from the ERDF and equivalent national match funding of GBP 50 mil‑ lion (GBP 12 million in cash and GBP 38 million in land assets at market value). During the 10 year lifespan of the NWUIF, subsequent investments of up to GBP 200 million are expected from capital receipts and returns from the initial in‑ vestments. The NWUIF’s, and consequently the UDFs, investment strategy essentially focuses on (7 ) The EIB may be mandated by the EU to carry out special financial tasks in support of economic and social cohe‑ sion. Article 175 of the TFEU empowers the EU to sup‑ port the achievement of the objectives set out in Article 174 through actions which it takes, inter alia, through the EIB. The EIB is the only international financial institu‑ tion over which the Commission exercises a de facto veto right in respect of proposed financing from own resources through the ex ante consultation procedure set out in Ar‑ ticle 19 of the EIB Statute. (8) Art 8 of the ERDF Regulation. JESSICA could support‑ ing projects in the following areas: urban infrastructure (transport, water/waste water, energy), heritage or cultural sites (tourism or other sustainable uses), redevelopment of brownfield sites, creation of new commercial floor space for SMEs, IT and/or R&D sectors, energy efficiency improvements.
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property regeneration projects aimed at bringing back into commercial use derelict, contaminated, under‑used or vacant land or buildings in the identified strategic sites included in the relevant IPSUDs. Following a tendering procedure, the EIB selected two UDFs (Merseyside UDF and Evergreen UDF). Merseyside UDF, established and managed by Igloo Regeneration Limited, focuses on the Merseyside sub‑region. Evergreen UDF, established by several local authorities in the Northwest area and man‑ aged by CB Richard Ellis, focuses on the rest of the Northwest region. Each UDF received a GBP 30 million contingent loan on sub‑commercial terms from the NWUIF (9), which the UDFs channelled together with an additional GBP 30 million of pub‑ lic/private match‑funding for equity and/or debt investments in urban projects.
2.3.
Andalucía Jessica Holding Fund
The Spanish authorities established the JESSICA Holding Fund Andalucía ( JHFA) of EUR 86 mil‑ lion in May 2009 in partnership with the EIB, appointed as JHFA Manager. The overall objec‑ tive of the JHFA is to facilitate sustainable urban development in Andalucía by supporting invest‑ ments in projects carried out in the assisted area of Andalucía. The investment strategy of the JHFA focuses on a range of activities seeking to improve social integration, mobility, energy management and energy efficiency, reconversion of industrial and degraded areas, development of infrastruc‑ ture, urban waste management, and social hous‑ ing by supporting urban projects included in local IPSUDs. The EIB has selected two UDFs (Banco Bilbao Vizcaya Argentaria (BBVA) and Ahorro Corporación Financiera) following a tendering procedure and provided a sub‑commercial contin‑ gent loan to finance equity and loan investments in urban projects.
3. Assessment 3.1. Private investors - State aid recipients The Commission assessed State aid within the meaning of Article 107(1) TFEU at each level of the funding architecture. It considered that State re‑ sources were involved even if deployed via a num‑ ber of investment intermediaries. Even though the HFs/UDFs operate independently of direct state in‑ terference and apply sound investment management (9) The loan is to be repaid by 2031 with a minimum return expectation of not less than zero return net of manage‑ ment fees.
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Competition Policy Newsletter
In its decisions, the Commission considered that the UDF managers were not State aid recipients, as their remuneration was determined in an open and non‑discriminatory tendering process and so considered to be market‑conform. Separation of accounts avoids any spill‑over from economic ac‑ tivities possibly carried out by the UDF managers. The Commission considered that the UDFs, where they have a separate legal structure, were not State aid recipients either, as they are investment vehicles for transferring the public funds to urban projects and do not undertake any development activities themselves. The Commission found that the preferential treat‑ ment of private investors at both the UDF and pro‑ ject levels constituted State aid. Notably, by anal‑ ogy to the Risk Capital Guidelines (RCG) (10), the contingent loans provided by the HFs to the UDFs confer an economic advantage on the private inves‑ tors in the UDFs, as it allows their investments to be made on more favourable terms than the public investment. Likewise, the UDF sub‑commercial loans (11) and/or non‑pari passu equity/quasi‑equity invested in urban projects confer an economic ad‑ vantage on project promoters, such as project devel‑ oper and other investors, as it enhances their invest‑ ment performance and favour their investments.
3.2.
Compatibility approach
The Commission noted that the Member States correctly invoked Article 107(3)(c) TFEU as the basis for a compatibility assessment, as no specific secondary EU legislation appeared directly applica‑ ble to the cases. (12) While urban projects by their nature are diverse and, taken in isolation would (10) OJ C 194, 18.8.2006, p. 2. By analogy to point 3.2. of the RCG, advantage could be excluded where investments are effected pari passu between public and private investors and public and private investors share exactly the same upside and downside risks and rewards and hold the same level of subordination, and normally where at least 50 per‑ cent of the funding is provided by private investors that are independent from the companies in which they invest. (11) According to its decision practice, in order to determine whether loans will be granted on favourable conditions, the Commission must verify if the interest rate on the loans in question complies with the Commission’s refer‑ ence rate set out in the Reference Rate Communication (OJ C 14, 19.1.2008, p. 6.). (12) This, however, does not rule out the possibility for Mem‑ ber States to devise measures that are in compliance with existing rules, when this suits their needs.
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fall under diverse legal frameworks, the JESSICA funds pursue a distinct policy objective of integrat‑ ed urban development. This means that projects are inter‑related and form part of an integrated plan. Moreover, to be effective, the funds need to op‑ erate under a coherent set of operating principles, which would not be possible if different rules were applied. Extensive pre‑notification discussions took place between the Comm ission, the Member States and the EIB throughout 2010-2011. As a result, a num‑ ber of important principles were introduced to the measures to address competition concerns raised by the Commission. The developed compatibility approach sought to reflect business practice and rely on sound investment management principles, which would be suitable for diverse funding struc‑ tures and instruments used under the JESSICA framework. To assess the aid under Article 107(3)(c) TFEU, the Commission had to verify that the aid was: (i) well targeted to achieve an objective of common inter‑ est, (ii) well‑structured (appropriate, necessary and limited to the minimum necessary), and (iii) did not result in undue and/or disproportionate distortions of competition or have a detrimental effect on in‑ tra‑EU trade. 3.2.1. Targeting objectives of common interest Promoting sustainable urban development is a com‑ mon interest objective under Articles 4, 14 and 174 TFEU. The Commission noted that the HFs and the UDFs operate in line with the policy objectives set out in their investment strategies, which focus on supporting “the development of participative, integrated and sustainable strategies to tackle the high concentration of economic, environmental and social problems affecting urban areas”. (13) It also noted that the EIB had assessed the invest‑ ment strategies of potential UDFs in light of the HF Investment Strategies to ensure alignment with the HF policy objectives. In particular, the Commission observed that the HFs/UDFs are designed to operate in line with the policy objectives set out in the applicable Na‑ tional Strategic Reference Frameworks and the priorities established in the relevant Operational Programmes. Moreover, each UDF’s investment strategy was aligned to the relevant IPSUD, which sets out key priorities for the UDF according to the (13) In line with Article 8 of the ERDF Regulation.
37
State AID
principles, their investment decisions remain imput‑ able to the State. They must adhere to the invest‑ ment conditions set out by the state in the funding agreements; thus the state exercises indirect control over its resources through contractual relationships with fund managers.
State AID
criteria set out in the Community Strategic Guide‑ lines on Cohesion 2007-2013. (14) The Commission considered that the investment strategies of the HFs/UDFs were properly designed to facilitate economic efficiency by addressing iden‑ tified market failures and to enhance socio‑eco‑ nomic cohesion by promoting investments in de‑ prived urban areas. The underlying business case for the HFs was developed based on the findings of ex ante assessment, notably JESSICA Evaluation Studies and other relevant studies submitted to the Commission. These established the rationale of the HF operations in light of existing market failures specific to the target areas. The Commission noted that project eligibility re‑ quirements and restrictions set out in the HF In‑ vestment Strategies are well aligned with the iden‑ tified market failures. The HFs’ resources will be provided to support investments in new activities and exclude the re‑financing of acquisitions or participation in completed projects. Investments should seek to address risks in the development and construction phase, thus excluding projects that are in the operating phase. Finally, investments in com‑ panies in difficulty within the meaning of the Com‑ munity Guidelines on State aid for rescuing and re‑ structuring firms in difficulty (15) are excluded. 3.2.2. Appropriateness The Commission found the measures to be appro‑ priate. The management of public funds is delegat‑ ed to independent and professional intermediaries that are contractually required to take sound in‑ vestment decisions while seeking to achieve policy objectives. The involvement of the intermediaries allows additional funding to be leveraged at fund level and mitigates investment risks through the ‘portfolio effect’. In addition, there is a minimum requirement for private co‑investment in each pro‑ ject to share investment risks. Finally, the revolv‑ ing funds could be ‘recycled’ and made available for further reinvestments. While achieving the policy objectives, the funds capture the value created from investments and produce financial returns.
(14) Article 8 of the ERDF Regulation and Section 2.1 of the Annex to Council Decision 2006/702/EC of 6 Oc‑ tober 2006 on Community strategic guidelines on cohe‑ sion, OJ L 291, 21.10.2006. According to the Strategic Guidelines, the following aspects should be included in an integrated urban development plan: a definition of the target urban areas and the geographic focus of projects, an analysis of urban socio‑economic and environmental needs, the demand for assets/services and a coherent de‑ velopment plan (a multi‑purpose, multi‑sector approach, including the elements of a land‑use plan). (15) OJ C 244, 01.10.2004, p. 2.
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3.2.3. Necessity and incentive effect As a general principle, the Commission considers that public intervention may be justified to address a financial viability gap. Such sub‑optimal investment situations should not be due to poorly structured un‑ derlying investments, but rather due to market fail‑ ures and/or location characteristics of underdevel‑ oped areas. Therefore, any public investments must be justified by a robust business plan demonstrating that the investment would not have been carried out by the market without public support. The Commission first verified whether any safe‑ guards were in place ensuring that the public funds would be invested only in viable projects (or a pro‑ ject portfolio at UDF level) with the capacity to repay the investment, and also ensuring the op‑ erational viability of the HFs/UDFs. Investments should be repaid from project activities - grants may not be used for the repayment. The HF/UDF managers are to carry out an ex ante investment ap‑ praisal for each transaction using sound investment appraisal principles in line with best investment management practices. In this way they verify that each project’s (or a project portfolio at UDF level) underlying business plan is feasible from the eco‑ nomic and technical points of view. In this regard, the EIB carried out investment due diligence of potential UDFs based on their busi‑ ness plans. It verified the expected financial perfor‑ mance of potential UDFs, since repayment of HF resources ultimately depends on the performance of the underlying UDF project portfolio. (16) Moreo‑ ver, since the EIB delegates individual investment decisions to the selected UDFs, it relies on their ap‑ praisal, risk management and monitoring standards. Therefore, the EIB also assessed the governance structure, investment process, exit policy, manage‑ ment capacity and structure as well as management remuneration of the potential UDFs. Likewise, in line with their respective UDF invest‑ ment strategies, the UDFs target viable urban pro‑ jects with the capacity to generate positive invest‑ ment returns and repay the UDF investments (albeit below market rates) based on realistic business plans and ex ante defined exit strategies. The assessment is carried out by professional and independent UDF managers who are contractually obliged to exercise due care. They also have an economic incentive to invest in viable businesses as their remuneration is linked to investment performance. In the next step, the Commission assessed the safeguards for ensuring the necessity of aid. The (16) Due diligence based on an indicative portfolio only means a list of projects for subsequent investment appraisal by the UDFs.
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Competition Policy Newsletter
The Commission considered that the HF/UDF sub‑commercial investments had an incentive effect as they enhanced expected investment performance for private investors. The nature and mix of the UDF investment instruments are project‑specific depending on its financing needs. (18) The UDFs may offer a combination of subsidised loans and subordinated loans as well as non‑pari passu eq‑ uity. Essentially, the investment approach is based on project financing techniques that estimate and rank future investment returns in order of senior‑ ity, where senior debt is served before subordinated debt and equity claims come at the investment exit. This allows for various asymmetric profit and risk sharing arrangements between equity holders. (19) 3.2.4. Proportionality The Commission’s decisions established a number of operational safeguards that limit the aid to pri‑ vate investors to the minimum necessary. 3.2.4.1. Private investment To share investment risks and avoid market crowd‑ ing‑out, the Commission noted that the public funds are to be co‑invested with private market‑ori‑ ented investors, which must be free of any public (17 ) Any State aid, such as grant funding, received prior to the UDF investment reduces overall investment costs, which will be reflected in a reduced viability gap. (18) Under a project finance model, a project company typi‑ cally raises equity and debt to finance the construction of the project and pays off the financing from the rev‑ enues that the project generates. The equity is provided by project promoters, which could be project developers and third‑party financial investors that are responsible for project activities and provide investments in order to gen‑ erate returns, while debt is normally raised by promoters in the market, especially when the project is in an opera‑ tion phase and starts yielding returns. (19) A combination of non‑pari passu equity investments could offered through a shared return structure (prefer‑ ential returns, priority returns and/or different investment timing) and/or public investments being in a capped ‘first loss’ position. Preference, however, is given to the up‑ side risk sharing instruments instead of just covering the downside risks.
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support. (20) Firstly, the total private investment in any form in each deal must cover at least 30% of each project’s costs in the Andalucía Jessica Holding Fund case, which takes into account that invest‑ ments will be made in the assisted area, and at least 50% in the Northwest Urban Investment Fund case. Sec‑ ondly, private investors in each deal must provide significant capital contribution (technically equity or equity‑like investments) to each project where ‘significant’ is not defined in percentage terms, but will be determined on a case‑by‑case basis by the UDFs. Private investment may be made at UDF or project level, as long as the total private investment in each project complies with the above requirements. 3.2.4.2. Limiting advantage to private investors The Commission considered that the aid was lim‑ ited to the minimum necessary to close the viabil‑ ity gap, including generating a reasonable profit for private investors. The public funds provided on sub‑commercial terms may improve expected in‑ vestment performance for private investors at the UDF or project level up to a so‑called Fair Rate of Return (FRR), which is a risk adjusted rate of re‑ turn that is comparable with other opportunities in the market for this type of investment. (21) Any in‑ vestment gains above the FRR shall be shared pro rata among public and private investors. Once the funding package is completed, no additional incen‑ tives which would exceed the FRR may be provided in relation to the same transaction. The Commission found that the FRR would be determined objectively for each transaction involv‑ ing public funds in one of two ways. The first is a competitive process, such as a public procurement process, where applicable, or competitive market testing addressed to several investors with at least two funding offers received, which allows selecting potential investors whose expected rate of return is the closest to the market and therefore consid‑ ered to be the FRR. Where a competitive process is non‑existent or limited (e. g. only one poten‑ tial investor is offering funding and already owns a project asset), the FRR shall be determined by an Independent Expert, who determines the FRR by professional analysis of industrial benchmarks and (20) The term ‘private investor’ means any investor, whether private or public, that invests its money in a profit‑ori‑ ented way, following market economy logic in a way de‑ fined by the Court for meeting the requirements of the Market Economy Investor Principle. See for example case T163/05, Bundesverband deutscher Banken/Commission, OJ C 100 17.4.2010, page 37. (21) A risk adjusted hurdle rate essentially refers to the op‑ portunity cost of capital, that is, the rate of return that the investor would accept in the capital markets for other investments of a similar risk profile.
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State AID
Commission noted that the funds should support only those projects (or a project portfolio at UDF level) that are not sufficiently viable from a com‑ mercial point of view and therefore would not be funded by the market on its own. In this respect, the HFs should select UDFs with an investment strategy that is intrinsically less profitable, as the indicative project portfolio would be perceived to be too risky and not generating sufficient returns to attract commercial funding to the UDFs. Likewise, before receiving sub‑commercial funding from UDFs each project should demonstrate a viability gap by generating below market returns. (17 )
State AID
market risk. Provisions are in place for the selec‑ tion process, verification scope and methodology, independence and competence requirements for Independent Experts. 3.2.4.3. Professional and independent fund managers The Commission took note that investment deci‑ sions at any level of the funding architecture are made by professional and independent fund man‑ agers. They are contractually obliged to operate within defined investment parameters and apply sound investment management principles. The management of the HFs and UDFs is overseen by investment boards made up of appointed represent‑ atives from key stakeholders, which will ensure the investments are made according to the Investment Strategies. The Commission also noted that if the UDF manager does not perform its tasks, the UDF will receive reduced management fees. The EIB has the right in the event of non‑performance to ter‑ minate the Operational Agreement. In addition to contractual duties, the Commission noted that the UDF management fee includes a component linked to investment performance, which will incentivise the UDFs to take sound investment decisions and limit the aid to the minimum necessary. 3.2.4.4. Further requirements In its decisions, the Commission introduced the requirement for Member States to submit a stand‑ ardized information sheet (SIS) for each sub‑com‑ mercial UDF investment exceeding EUR 5 million in a single project. This will allow the Commission to monitor compliance with the conditions of the decisions. To enhance the transparency of State aid, the Commission introduced an individual notifica‑ tion requirement for projects larger than EUR 50 million, irrespective of what proportion of these costs is financed by the UDFs. Finally, Member States must provide annual reports on State aid compliance to the Commission. State aid approvals are limited in time (5-10 years). 3.2.5. Avoiding distortions of competition and trade In its assessment the Commission took into ac‑ count the aid granting process, the characteristics of the relevant markets and the type and amount of aid. Overall, it found that distortions of compe‑ tition and trade were limited as the aid is granted to efficient companies and is limited to what is necessary to close the viability gap and address market failures and socio‑economic deprivation in urban areas. The UDFs were procured accord‑ ing to the principles of equal treatment, propor‑ tionality, non‑discrimination and transparency.
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Urban projects will be selected in an open and non‑discriminatory process. On this basis, the Commission found that the posi‑ tive effects outweigh the potentially negative effects of the aid and considered the aid was compatible with the TFEU on the basis of Article 107(3)(c).
4. Beyond the JESSICA decisions financial instruments and State aid control The first JESSICA decisions are a good example of how the Commission has dealt with financial engineering measures in the context of the JES‑ SICA initiative, a novel EU cohesion policy instru‑ ment. The decisions could provide a blueprint for other Member States on how to design JESSICA State aid measures. These are important decisions also because the compatibility approach could be transposed across a broad range of policy deploy‑ ing public funds through financial engineering instruments. The Commission placed financial instruments at the heart of the Europe 2020 Strategy. Financial instruments are expected to play an important role in the new financial framework 2014-2020 as an alternative to non‑reimbursable grants. The Com‑ mission has proposed common rules and guidance for innovative financial instruments – the so‑called Equity and Debt Platforms. (22) The Commission’s pro‑ posals for post-2013 cohesion policy also envisage strengthening the role of financial instruments, as effective tools to support Member States’ efforts in delivering Europe 2020 targets and to promote so‑ cial, economic and regional cohesion. In this regard, the JESSICA decisions should pro‑ vide an important input for the modernisation of future State aid policy and financial. The decisions set out operational safeguards based on well‑es‑ tablished project finance techniques that focus on sound financial management principles and invest‑ ment performance indicators that should be suita‑ ble to any forms of revolving financial instruments, deployed in any policy area.
(22) The Communication of 19 October 2011 on “A new framework for the next generation of innovative finan‑ cial instruments – the EU equity and debt platforms” (COM(2011)622 final).
Number 3 — 2011
Competition Policy Newsletter
State AID
The rescue and restructuring of Hypo Real Estate Matthäus Buder, Max Lienemeyer, Marcel Magnus, Bert Smits, Karl Soukup (1)
1. Introduction In this article, we briefly describe the case of State aid for Hypo Real Estate (HRE). HRE is a German banking group that got into difficulties in 2008 and was subsequently rescued and nationalised by Ger‑ many. In July 2011, the Commission approved the aid to HRE on the basis of an in‑depth restructur‑ ing plan, which is currently being implemented.
2. Description of HRE and its difficulties 2.1.
The history of HRE
In the autumn of 2002, the German HVB bank group decided, as part of a major reorganisation plan, to spin off its international commercial real estate finance business and the domestic mortgage bank participations, establishing HRE in 2003 as a specialised commercial real estate finance bank. In the beginning, HRE seemed to operate quite successfully, and between 2005 and 2008 HRE managed to be listed in the German DAX index, which is composed of the top 30 German com‑ panies. In 2007, HRE took over Dublin‑based DEPFA Bank plc (Depfa) and extended its business to public sector and infrastructure finance. That transaction more than doubled HRE group’s bal‑ ance sheet, which by the end of 2008 grew to ap‑ proximately EUR 420 billion.
2.2. HRE’s difficulties in the context of the financial crisis HRE’s business model, i.e. financing long‑term wholesale investments by short‑term interbank funding, was at the root of its difficulties. In partic‑ ular, the Depfa takeover exacerbated the asset and liability maturity mismatch in the group’s portfolio. As long as there was an excess supply of liquidity available in the markets this appeared to be a prof‑ itable strategy, mainly because the inherent trans‑ formation risk was not appropriately priced in. At the end of September 2008, after Lehman Broth‑ ers applied for creditor protection, HRE faced a li‑ quidity shortage which put the bank on the brink (1) The content of this article does not necessarily reflect the official position of the European Commission. Responsi‑ bility for the information and views expressed lies entirely with the authors.
Number 3 — 2011
of insolvency. HRE was no longer able to obtain short‑term financing on the markets and it did not have sufficient liquidity reserves to bridge the fund‑ ing gap. In addition, HRE faced possible capitalisation dif‑ ficulties attributable to legacy assets that did not show an appropriate return on investment when considering their actual risk profile. Finally, a lack of IT and risk system consolidation between divi‑ sions made efficient management more difficult.
2.3.
The bail‑out of HRE
In order to alleviate HRE’s liquidity constraints and to prevent its collapse, the German banking association tried at the end of September 2008 to set up a rescue system by providing about EUR 35 billion of liquidity to HRE. This was based on a guarantee by Germany which was approved by the Commission, on 2 October 2008, only un‑ der the condition that Germany submitted, within six months, a restructuring or liquidation plan for HRE, or proved that the guarantees were entirely redeemed. HRE continued to report heavy losses, so Germany not only had to provide further liquid‑ ity support but needed to inject capital as well. Fi‑ nally, HRE was nationalised by Germany; this was achieved through a squeeze‑out of the remaining shareholders. In autumn 2010, a public winding‑up institution (FMS Wertmanagement AöR - FMS‑WM) was established for HRE. It manages a large portfolio of assets and derivatives taken over from the HRE group. The criteria that guided HRE in the selec‑ tion process for the portfolio were that assets were either considered to be of no further strategic value, that they contained risks considered to be no long‑ er acceptable, that they were too capital‑intensive or that they were unsuitable as collateral to obtain future long term funding. FMS‑WM has over the course of time taken over HRE assets with a nom‑ inal value of about EUR 210 billion, i.e. half the 2008 balance sheet total.
2.4.
HRE now
The HRE group currently consists of Hypo Real Estate Holding AG (HRE Holding) and its sub‑ sidiaries pbb Deutsche Pfandbriefbank AG (PBB) and Dublin‑based Depfa. PBB is the renamed core
41
State AID
banking entity of the group, the only part of the business that continues to operate as such in the market, focussing on real estate finance and public investment finance (2). Depfa is in run‑down mode, no longer contracting new business.
activities will be on a considerably smaller scale than HRE’s activities before the crisis, whether measured in terms of balance sheet size, volume of new business, workforce, branch network or geo‑ graphical scope.
By the end of 2011, HRE’s core bank PBB was allowed to have an “adjusted strategic balance sheet” (3) total not exceeding EUR 67 billion. That means that its portfolio of real estate finance as‑ sets and interest bearing assets in the area of public investment finance was capped and could not ex‑ ceed that threshold. As a result, although the HRE group’s balance sheet is still relatively large, the core going concern of the institution has been severely cut down in size.
PBB’s adjusted strategic balance sheet total at the end of 2011 accounts for approximately 15 % of HRE’s balance sheet size at the end of 2008. That reduction in size was accompanied by a substan‑ tial reduction of the workforce. More than 30 par‑ ticipations, one third of which are outside Europe, have already been divested or liquidated, or are in the process of liquidation. Twenty‑six out of 32 branches have been closed. In addition, a multi‑year group‑wide transformation with a budget of ap‑ proximately EUR 180 million has been launched to improve and integrate the IT systems.
3. The in‑depth investigation In light of HRE’s unfortunate former business strategy, the initial restructuring approach of April 2009 and the related refinancing needs, the Com‑ mission opened an in‑depth investigation into State aid measures for HRE on 7 May 2009 (4), based on doubts regarding HRE’s long‑term viability. At that stage, the Commission also had doubts that suffi‑ cient measures to limit distortions of competition and to achieve adequate burden‑sharing were in‑ cluded in the plan. The in‑depth investigation was extended on 13 November 2009 and on 24 Septem‑ ber 2010 because additional State aid measures for HRE had become necessary in the meantime.
4. Main features of the restructuring plan On 1 April 2009, Germany notified the first draft of a restructuring plan for HRE and, after sev‑ eral modifications, submitted the final version of the plan on 14 June 2011. In view of the consid‑ erable state support which HRE had received, a deep restructuring of HRE was necessary not only to restore viability but also to minimise dis‑ tortions of competition and to ensure adequate burden‑sharing. According to the restructuring plan, HRE – freed from its legacy of impaired assets with a nominal value of EUR 210 billion – will redesign its busi‑ ness activities in such a way that its core bank PBB can carry out its activities based on stable funding and improved internal control systems. Its future (2) Public investment finance means those public finance activities that relate to specific projects and investments, as opposed to general purpose lending or the holding of (quasi-)government bonds. (3) PBB’s adjusted strategic balance sheet total is defined as the balance sheet total corrected for items that are in run‑down mode or have been synthetically transferred to FMS‑WM – accounts. (4) OJ C 240, 7.10.2009, p. 11.
42
PBB is the only subsidiary of HRE Holding which is continuing to generate new business; it pursues two strategic business lines, real estate finance and public investment finance. Both business lines target assets that are eligible for German covered bonds, either in the form of German mortgage bonds (Hypothekenpfandbriefe) or German public sec‑ tor bonds (öffentliche Pfandbriefe). Refocusing HRE’s business model in such a way that the bank will in future only acquire assets that are eligible for Ger‑ man covered bonds is a crucial element of the re‑ structuring plan in order to achieve de‑risking of its activities. The eligibility criteria set out in the German law for covered bonds (Pfandbriefgesetz) in essence only allow for a bond cover pool of good quality. Accordingly, PBB will no longer pursue other activities, in particular not budget finance business, infrastructure finance, capital markets and asset management activities. In order to ensure that the business model set out in the restructuring plan is actually implemented, and to ensure that adequate burden‑sharing is achieved and distortions of competition are limited to the minimum, Germany submitted a number of commitments. The following are key: – the growth rates of PBB have to remain within defined limits, measured in terms of balance sheet size as well as volume of new business, – the bank can acquire new business only on cer‑ tain geographic markets, – the bank must not acquire other businesses dur‑ ing the restructuring period, – Germany will re‑privatise PBB as soon as possible. The Commission’s investigation confirmed that HRE has a significant list of tasks to fulfil in order to restore long‑term viability. The most important Number 3 — 2011
Competition Policy Newsletter
5. The State aid approved for Hypo Real Estate Based on the above business strategy, the Com‑ mission decided on 18 July 2011 (5) that Germany’s State aid to HRE, consisting of capital injections of approximately EUR 9.95 billion (FMS‑WM is the recipient of part of that capital), guarantees of EUR 145 billion and an asset transfer to FMS‑WM with an aid element of about EUR 20 billion, was compatible with the internal market on the basis of Article 107(3)(b) of the Treaty on the Functioning of the European Union (TFEU) in the light of the commitments submitted by Germany. Before reaching that final decision, the Commis‑ sion took six decisions authorising a series of aid measures temporarily, respectively opening and ex‑ tending the in‑depth investigation: – Decision of 2 October 2 0 08; State a id NN44/2008 - Germany, Rescue aid for Hypo Real Estate (6); – Decision of 7 May 2009 (Corrigendum of 24 July 2009); Staatliche Beihilfe C 15/2009 (ex N 196/2009) - Hypo Real Estate, Deutschland; – Decision of 13 November 2009; State aids n° C 15/2009 (ex N 196/2009), N 333/2009 & N 557/2009 – Germany, Hypo Real Es‑ tate – Extension of formal investigation pro‑ cedure, and temporary find capital injections compatible ( 7 ); – Decision of 21 December 2009; State aid n° N 694/2009 – Germany, Emergency guarantees for Hypo Real Estate (8); – Decision of 19 May 2010; State aid N 161/2010 – Germany, Further recapitalisation of Hypo Real Estate (9); – Decision of 24 September 2010; State aids n° C 15/2009 (ex N 196/2009) & N 380/2010; (5) http://ec.europa.eu/competition/state_aid/cases/231241/ 231241_1279613_551_2.pdf (6) OJ C 293, 15.11.2008, p. 1. (7 ) OJ C 13, 20.1.2010, p. 58. (8) OJ C 25, 2.2.2010, p. 14. (9) OJ C 190, 14.7.2010, p. 7.
Number 3 — 2011
Extension of scope of formal investigation pro‑ cedure, winding‑up institution, additional SoF‑ Fin guarantees for HRE; Hypo Real Estate, Germany (10). According to the Commission decision of 18 July 2011, a monitoring trustee keeps the imple‑ mentation of HRE’s restructuring plan and the ful‑ filment of the commitments submitted by Germany under close surveillance, reporting to the Commis‑ sion on a regular basis.
6. Interesting features of the HRE case The HRE case is characterised by several inter‑ esting features. The most important ones are the following.
6.1.
rocedurally long and complex case P involving substantial aid amounts
The first rescue decision for HRE was adopted on 2 October 2008. This was the first decision adopted under the accelerated procedure (11) introduced dur‑ ing the financial crisis. The final restructuring decision for HRE was adopted on 18 July 2011, i.e. nearly three years after the first rescue decision, which so far is one of the longest periods for a banking State aid case in the financial crisis. One of the reasons for the length was that it took some time to establish the actual portfolio of assets to be hived off, not least because the bank’s IT and risk reporting systems at the time were inadequate. The HRE case entailed seven Commission deci‑ sions. Hence, it is one of the banking State aid cases with the most decisions. On 7 May 2009, the Com‑ mission opened the in‑depth investigation regard‑ ing State aid for HRE. After the opening of the investigation, HRE required further State aid from Germany. Each of these further State aid measures were individually approved by the Commission. The German State aid package for HRE makes the HRE case one of the biggest State aid cases of the financial crisis, whether measured in absolute or rel‑ ative terms. The amount of capital injection and the amount of State aid resulting from the relief meas‑ ure together represent more than 20% of HRE’s pre‑crisis risk weighted assets. As regards state guar‑ antees, HRE has so far received the highest amount of state guarantees compared to other State aided banks in Europe during the financial crisis. (10) OJ C 300, 6.11.2010, p. 6. (11) See recital 53 of the Commission communication on the application of state aid rules to measures taken in rela‑ tion to financial institutions in the context of the current global financial crisis, OJ C 270, 25.10.2008, p. 8.
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ones are the ongoing restructuring and cost cutting efforts; the further development of an adequate sta‑ ble revenue generating business from the strategic pillars, independent from the revenues it is cur‑ rently generating from the asset management man‑ date of FMS‑WM; and further fine tuning and im‑ proving of risk management systems to allow strict monitoring and planning of risk positions.
State AID
6.2. Involvement of impaired assets measures through large bad bank HRE´s bad bank, FMS‑WM, was established in the autumn of 2010. FMS‑WM acts independently of HRE and benefits from an obligation of SoFFin (Sonderfonds Finanzmarktstabilisierung – a public German Fund) to compensate losses. FMS‑WM does not have a banking licence and hence does not have to fulfil the regulatory capital requirements of a bank. FMS‑WM holds a portfolio of securities, loans and derivatives. The loans portfolio consists of three main areas, namely commercial real estate/workout, value management (public sector linked structured products) and infrastructure. It has considerable exposure to PIIGS governments and quasi govern‑ ment entities. FMS‑WM has in the course of time taken over as‑ sets of HRE with a nominal value of about EUR 210 billion. This makes FMS‑WM the biggest bad bank in Europe in the context of the current finan‑ cial crisis. In the context of the transfer of assets from HRE to the bad bank, HRE needed addition‑ al short term guarantees from the state to bridge liquidity gaps caused by transfer counterparties de‑ manding controlled settlement. An assessment of the bad bank transfer revealed an a priori incompatible aid amount of more than EUR 15 billion, which according to the Impaired Asset Communication (12) ought to be recovered or clawed back over time. Although certain clauses allowing for contingent payments and profit skim‑ ming have been introduced, PBB was not able to provide for full recovery.
adjusted strategic balance sheet total of EUR 67 bil‑ lion at the end of 2011. That threshold is equal to approximately 15% of HRE group’s balance sheet at the end of 2008; the restructuring plan therefore targets a downsizing of approximately 85%, one of the most significant downsizings of aided banks in Europe in the financial crisis, in both absolute and relative terms. The Commission carefully considered whether such massive State aid could still be found compatible with the internal market without liquidating the bank. First of all, after careful in‑depth assessment on the basis of information provided by Germany, the Commission was able to conclude positively on the prospects of PBB, i.e. the core bank of the “new” HRE, to restore long‑term viability, subject to full implementation of the restructuring plan. It noted the significant downsizing in terms of bal‑ ance sheet size and scope of activities as well as the other limitations offered by Germany as measures limiting distortions of competition. The Commis‑ sion considered that the nationalisation implied important burden‑sharing by the former stakehold‑ ers, addressing moral hazard issues. It noted that al‑ though PBB contributes as much as possible to the restructuring costs and the claw back, this would not reach the level of own contribution normally required. However, the overall amount of downsiz‑ ing was considered to be an adequate substitute for this lack of sufficient own contribution. Overall, the conditions for finding the aid compat‑ ible with the internal market were considered to be met, allowing the Commission to take a positive conditional decision.
6.3. Considerable down‑sizing of the business but no liquidation Given the above features, in particular the inability to claw back the a priori incompatible aid amount involved in the asset transfer to FMS‑WM and the other considerable aid amounts, a very far reaching restructuring plan including significant downsizing was necessary, not only from a long‑term viability perspective, but also to mitigate the distortions of competition caused by allowing the undertak‑ ing to continue to be in business. On that basis, as explained above, PBB is only allowed to have an
(12) Communication from the Commission on the treatment of impaired assets in the Community banking sector OJ C 72, 26.3.2009, p. 1.
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Number 3 — 2011
Competition Policy Newsletter
State AID
WestLB liquidation – the end of the saga By Max Lienemeyer, Marcel Magnus (1)
1. Introduction On 20 December 2011, the European Commission approved the liquidation plan submitted by the Ger‑ man government for the commercial bank WestLB, majority‑owned by the two savings banks asso‑ ciations in North Rhine‑Westphalia and the federal state of North Rhine‑Westphalia. After 30 June 2012, WestLB stopped new banking business. The plan aims at a sale and eventual winding down of its bank‑ ing activities. In the medium term, the bank will be transformed into a run‑down vehicle for servicing legacy positions that were transferred to a bad bank named EAA, while the brand name WestLB will fi‑ nally disappear from the market. That liquidation brings an end to the WestLB saga. The bank has not only often hit the headlines but has also been subject of several State aid investiga‑ tions over the last decade (2). To put the decision taken in December 2011 into context, we briefly outline some common problems faced by most German Landesbanks and the specific situation of WestLB which led to the liquidation plan.
1.1. The wider context: German Landesbanks The German public banking sector is made up of a large number of smaller savings banks on the one hand and a small number of very large Landes‑ banks – among those WestLB – on the other hand. For a long time Landesbanks benefitted from a competitive advantage in the form of State guar‑ antees called Gewaehrtraegerhaftung, which gave them access to cheap funding. In 2001, the European Commission and the German government agreed to bring the Gewaehrtraegerhaftung to an end, albeit with a transitional period until the end of 2005. In (1) The content of this article does not necessarily reflect the official position of the European Commission. Responsi‑ bility for the information and views expressed lies entirely with the authors. (2) Already in July 1999 the Commission took a negative final decision regarding capital transfers in favour of WestLB which occurred during the 1990s. That decision was annulled by the Court due to lack of motivation, and replaced by a new decision in October 2004. The total re‑ covery including interest amounted to about EUR 1 bil‑ lion. On 18 July 2007, the Commission took a decision to endorse five capital contributions as being eligible under State aid rules. Those capital contributions to WestLB were made between 2002 and 2005 and added up to ap‑ proximately EUR 6 billion.
Number 3 — 2011
general Landesbanks struggled to find a sustain‑ able business model once they were deprived of the privilege of access to cheap financing. While banks in Germany in general tend to be less profitable than banks in other countries, as can be seen in the OECD Bank Profitability Database, Landesbanks performed even worse than the average German bank, and consequently were even more affected by the financial crisis. The poor profitability and inglo‑ rious track record of several Landesbanks in Ger‑ many led over time to difficulties, and the broad consensus in Germany was that the Landesbank sector needed to be reformed (3). That necessity was also highlighted in assessments made by external experts such as research institutes, regulators, the OECD and the IMF. A detailed analysis of the underlying reasons for the Landesbanks’ insufficient performance would go beyond the scope of this article. Still, one core aspect should be mentioned: the segregation of the German public banking sector (4) prevented Landesbanks from expanding into retail or small business banking, a business area which is in the hands of the savings banks. Landesbanks were hence left with wholesale and investment banking. So they expanded into business areas that they per‑ ceived to be profitable, and made large investments in foreign markets, buying for example structured credit products and bonds whose inherent risks they apparently underestimated. Those investments and similar exposures made them specifically vulner‑ able to the impact of the financial crisis. In conse‑ quence, first SachsenLB, then WestLB, and later on also BayernLB, HSH and LBBW had to be bailed out by the German taxpayer, who provided them with substantial State aid to weather the crisis. If it had not been for those substantial capital injections, guarantees and asset relief measures, losses related (3) Sachverständigenrat zur Beg utachtung der gesa‑ mtwirtschaftlichen Entwicklung‚ Das deutsche Finan‑ zsystem: Effizienz steigern — Stabilität erhöhen‘ vom Juni 2008; Ziffer 246-260. (http://www.sachverstaen‑ digenrat‑wirtschaft.de/download/publikationen/exper‑ tise_finanzsystem.pdf) (4) In fact, the extent to which Landesbanks are vertically in‑ tegrated with the savings banks branch network varies, with Helaba being a prominent example of a Landesbank that is rather well integrated and that was hardly affected by the financial crisis. Likewise it is true that, although Landesbanks share common features, notably their share‑ holder structures, their business models and respective risk appetites differ.
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to these activities would have absorbed a major part or all of those banks’ equity.
1.2.
WestLB’s specific situation
WestLB’s quest for a sustainable business model goes back to 2001 when activities carried out in the public interest were separated from its economic activities. From the very beginning the bank’s re‑ structuring efforts focused on investment banking activities. These efforts did not, however, lead to the desired results. Short term profits stemming from oppor‑ tunistic, volatile and costly investment banking ac‑ tivities were followed by huge losses in 2002, 2003, 2004, and 2007 (5).
2. The May 2009 decision At the beginning of 2008, remarkably even before the collapse of Lehman Brothers, which is often considered as the starting point of the financial crisis, WestLB was once again in desperate need of support. Its public shareholders had to shield a portfolio of toxic assets by a guarantee of EUR 5 billion. After notification of that aid, a restruc‑ turing plan was submitted for WestLB, outlining the measures intended to minimize the distortion of competition. In the assessment the Commission concluded that the bank was not in a position to reduce its activities significantly and to restore vi‑ ability at the same time. The aid to WestLB was therefore authorized in May 2009 only under the condition that the bank would be sold as a whole or in parts by the end of 2011, or would otherwise need to cease its business activities. The decision provided that WestLB had to reduce its overall as‑ sets by 50%, cease risky activities like proprietary trading, and had to implement a reporting structure that would facilitate a sale in parts. Although all shareholders initially agreed to the proposal, it was eventually imposed as a conditional decision which was attacked in Court.
3. New aid – and a new final decision 3.1.
The interim guarantee
WestLB’s capital ratio fell significantly short of the regulatory minimum capital requirements. Hence, for reasons of financial stability the Commission authorized on 7 October 2009 a temporary asset guarantee of EUR 6.4 billion that enabled decon‑ solidation of the toxic portfolio. That measure was approved for two months until it was to be replaced by a permanent solution.
3.2. In‑depth investigation of the bad bank In late 2009 WestLB’s shareholders agreed on a bad bank to free WestLB of its toxic and non‑strategic assets and to significantly reduce its balance sheet. That bad bank, named Erste Abwicklungsanstalt (EAA), was the first bad bank set up under the umbrella of an agency (SoFFin) that Germany had established in the financial crisis to stabilize and re‑ store confidence in its financial system. EAA’s task was to take over and wind up WestLB’s toxic and non‑strategic assets with a total initial nominal amount of approximately EUR 85 billion. In order to provide EAA with sufficient capital for the transfer, WestLB needed more State aid, namely a capital injection of EUR 3 billion. That capital was provided by SoFFin in the form of silent par‑ ticipation, as well as a further guarantee of EUR 1 billion by WestLB’s public shareholders. On 22 December 2009, the Commission opened an in‑depth investigation, based on doubts that the measure was in line with the requirements of the impaired asset communication, as regards transpar‑ ency, valuation and burden sharing. At the same time, the Commission’s temporary approval was based on Germany’s commitment to adjust both the remuneration and measures to limit distortion of competition, and to submit a new restructur‑ ing plan that adequately reflected the additional amount of State aid granted to WestLB. One of the main purposes of the in‑depth investigation was to assess the real economic value of the toxic and non‑strategic assets that had been transferred to EAA. The Commission hired external experts for that assessment.
Within only a few weeks after the decision of May 2009, WestLB informed the Commission that it needed considerably more State aid in order to es‑ cape bank resolution procedures. Due to the con‑ tinuing deterioration of underlying securities in one of the bank’s portfolios, the capital requirement increased sharply, resulting in a situation where
The assessment has taken considerable time due to the sheer volume of the portfolio, the number of transactions involved, discussions, and the exist‑ ence and impact of mitigating factors. To cut a long story short, the in‑depth investigation finally came to the conclusion that the transfer of the portfolio of toxic and non‑strategic assets to the bad bank happened at EUR 3.414 billion above the real eco‑ nomic value.
(5) See table 4 in the Commission decision of 5 Novem‑ ber 2010 in case C40/2009 on the Extension of formal investigation procedure, OJ C 23 2011 of 25.1.2011.
The aid amount was calculated as the difference between the market value of the portfolio and the
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Competition Policy Newsletter
3.3.
Consequences
The bad bank transfer involved an amount of State aid that by far exceeded the EUR 5 billion in aid that was subject to the May 2009 decision. For that reason Germany submitted a new restructuring plan, the assessment of which was the second phase of the in‑depth investigation. The new restructuring plan needed to take into account all the aid that was provided to WestLB, which required more in‑depth restructuring, even in the context of the envisaged sale of WestLB. A summary of related efforts reads as follows: in June 2010 SoFFin mandated the lawyer Friedrich Merz, formerly a politician and chairman of the CDU/CSU parliamentary party, to pursue the sale of WestLB, assisted by Morgan Stanley investment bank. A public tender for WestLB was launched in September 2010. A few weeks later BayernLB, an‑ other large German Landesbank, stepped forward and publically announced its interest in a merger with WestLB. In November 2010, however, Bay‑ ernLB stopped those negotiations, indicating that due diligence had shown that a merger with West‑ LB would not lead to acceptable economic results. Although later on some other well‑known names of strategic investors, as well as a few exotic names, popped up in the financial newspapers and were supposedly interested in acquiring WestLB, in the end, after weighing all the risks none of them made a bid with terms and conditions acceptable to WestLB’s shareholders. Consequently, in May 2011 the mandate of the divestiture trustee Merz was not prolonged. From the Commission’s point of view the failure of the sale efforts was a marked judgement on the credibility of WestLB’s business model, as evidently no market investor was willing to “buy” the story (6) Communication from the Commission on the Treatment of Impaired Assets in the Community Banking sector, OJ C 72, 26.03.2009, pages 1-22
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that this bank would generate economically suffi‑ cient returns on investment. Also the implementation of the old restructuring plan was lagging behind schedule. In particular, WestLB did not succeed in selling its most impor‑ tant subsidiary, WestImmo, a bank specialised in real estate financing. Therefore, the intended reduc‑ tion of WestLB’s balance sheet as stipulated in the decision did not materialize. The bank then finally stated in its updated restruc‑ turing plan that adequate remuneration as well as more in‑depth measures would jeopardize West‑ LB’s prospects of returning to viability. Shrinking the bank’s balance sheet size to less than 20% of its former size, a proposal made by WestLB in Febru‑ ary 2011, clearly proved impossible since that exer‑ cise had stronger effects on revenues than on costs, making the business less and less profitable. Not only did the question of how WestLB might build a sustainable business model on a much smaller scale than before remain unsolved; the same was true for the question of how the EUR 3.414 billion of incompatible aid could be repaid. Considering that WestLB was not able to generate the required funds internally, and that the intention to sell WestLB failed as well, there were no realistic alternatives left. Once it had become clear that modifications of WestLB’s restructuring plan would definitely not lead to a sustainable business model and State aid‑compatible results, a more radical plan was worked out by Germany, the federal state of North Rhine‑Westphalia, and the savings banks, which in essence suggested carving out a small part of West‑ LB’s business, transferring that part to the savings banks, and liquidating the remainder.
4. The liquidation plan That liquidation plan was submitted to the Com‑ mission on 30 June 2011. It said that WestLB would carve out the so‑called Verbundbank, an entity which focuses on cooperation with sav‑ ings banks and will employ about 400 employees, and that the remainder of assets would either be sold or liquidated. To this end, WestLB intended to transfer on 30 June 2012 all assets and liabilities to EAA, the bad bank that had already taken over its portfolio of toxic and non‑strategic assets. Af‑ ter 30 June 2012, WestLB would no longer engage in banking business on its own account, no longer use its brand name, and be transformed into an as‑ set manager. Banking licences not needed for the provision of asset management services would be withdrawn. Thus, significant and irreversible steps were laid out in the liquidation plan, which marked 47
State AID
price at which the portfolio was transferred to the bad bank. According to the Commission’s commu‑ nication (6) such State aid is compatible as long as the price paid for the assets only exceeds (temporar‑ ily distorted) market prices but not the real values of the assets. In the case of WestLB, however, the in‑depth investigation established that the transfer price exceeded the real economic value of the as‑ sets by EUR 3.414 billion. That amount, which is a priori incompatible with State aid rules, either had to be paid back by WestLB or be regained in an‑ other suitable form, for example by more in‑depth restructuring or the sale of WestLB.
State AID
an irrevocable exit from the market for the major‑ ity of WestLB’s former activities within 12 months. In the decision taken on 20 December 2011 the Commission concluded that the liquidation plan fulfilled all relevant criteria of the Restructuring Communication and the Banking Communication and thus approved all aid measures. Consequently, the May 2009 decision had lost its object and was repealed. As regards Verbundbank, the carved out entity will actually proceed with some of WestLB’s former business activities. The 20 December 2011 decision says that the entity will not be run on a stand‑alone basis – alleviating our concerns whether the entity would be sufficiently profitable to do so – but will be taken over by Helaba which is a viable bank. The carved out activities represent in terms of balance sheet size less than 20% of WestLB’s former bal‑ ance sheet and in terms of personnel less than 10% of WestLB’s former staff. In order to minimise distortions of competition, the winding‑down of WestLB had to be limited to the shortest period possible, even if the process takes several years. The bank itself may only contin‑ ue with asset management services that are a rath‑ er insignificant part of WestLB’s bank activities. These services are nevertheless required by EAA in order to run down the assets. They will be provided by the rump of WestLB, the servicing platform. Third parties may contract those services as well, but only to a limited amount, offered at fair market prices, and under the condition that the servicing platform be sold before 31 December 2016 or will otherwise be liquidated. A transformation period is required simply to allow management to reorganize the structures, to carve out the servicing company and to establish at least a short track record in order to attract potential investors. As regards burden‑sharing, the liquidation plan is based on the concept that WestLB’s shareholders will lose all their capital in WestLB. The savings banks have furthermore committed to provide EUR 1 billion of additional capital to enable the carve out of Verbundbank, while the federal state of North Rhine‑Westphalia agreed to take the ma‑ jor part of the burden and committed to bear the costs associated with the liquidation of WestLB, a considerable part of which stems from pension liabilities. The overall agreement sufficiently takes into account both the respective burden‑sharing
48
capacities of the parties as well as the degree to which they were formerly involved in setting the bank’s strategy and their degree of influence on the bank’s corporate governance. Since North Rhine‑Westphalia has taken the largest burden of the WestLB shareholders, the concession to allow the servicing company to offer a limited range of services to third parties, which reduces the overall costs of the liquidation, was well justified.
5. Concluding remarks The WestLB case demonstrates that ordinary wind‑ ing down can be a realistic possibility for ailing banks. In fact, WestLB was not able to generate sufficient, permanent and risk‑adequate profits in view of its high cost basis after having lost its cheap funding from Gewährträgerhaftung. After the attempt to sell the bank failed, liquidation, although costly in the short term, seemed inevitable and was in the long term preferable to repeated rescue operations. Nevertheless, the owners would probably not have agreed to a costly liquidation if they had not been faced with a credible alternative, a resolution under the new restructuring law passed by the Bund. Ap‑ plication of the restructuring law would in fact have implied that neither the owners nor the entire Ger‑ man public banking sector had been able to find a solution. The German federal savings banks asso‑ ciation therefore decided to get involved and to take half the losses while the other half was shouldered by the Land of North Rhine Westphalia. In spite of the potential costs of redundancies, the parties managed to reduce costs by limiting the bank’s ac‑ tivities to that of an asset manager on a going con‑ cern basis, while all assets were transferred to a bad bank. That provision reduced costs, as the bank does not have to report based on liquidation val‑ ues and assets do not have to be sold in a fire sale. For the Commission that scenario was acceptable because the bank clearly stopped any new business and transferred economic responsibility for asset management services to another entity. Further‑ more, the systemic risk of the bank’s failure is now clearly contained. WestLB is so far the only major banking case where failed attempts at restructuring ended in liquidation. Assuming that other Landes‑ banks do not want to go the same route as WestLB, they will certainly want to make sure that they can provide and implement sound and achievable re‑ structuring plans.
Number 3 — 2011
Number 3 — 2011 A/2 Antitrust and Mergers Policy and Scrutiny K. DEKEYSER A/3 State aids Policy and Scrutiny N. PESARESI
R/2 Resources, Ethics and Security J. STRAGIER
R/3 Information technology M. PEREZ ESPIN
B/3 Mergers P. HELLSTROM
B/2 State aids B. ENNER-LOQUENZ
B/1 Antitrust Energy, Environment C. GAUER
D/4 Mergers – T.F. Financial crisis K. SOUKUP D/5 State aids II – Support to Task Force Financial crisis S. BERTIN-HADJIVELTCHEVA
C/4 State aids W. PIEKE C/5 Mergers L. MC CALLUM S. MOONEN (ff)
Task Force Financial crisis D/3 State aids I – T.F. Financial crisis A. BACCHIEGA
D/2 Antitrust Financial services T. VERRIER
C/3 Antitrust IT, Internet and Consumer electronics N. BANASEVIC
C/2 Antitrust Media K. KUIK
D/1 Antitrust Payment systems R. WEZENBEEK
Task Force Food
E/4 Mergers T. DEISENHOFER
E/3 State aids Industrial restructuring J. LUECKING
E/2 Antitrust Consumer goods, Basic industries, Agriculture and Manufacturing M. REHBINDER
E/1 Antitrust Pharma and Health services H. PIFFAUT
Basic Industries, Manufacturing and Agriculture Director: P. CSISZAR
C/1 Antitrust Telecoms E. MARTINEZ RIVERO
Director: L. MC CALLUM (ff)
Information, Communication and Media
Director: Head of Task Force Financial crisis I. SCHWIMANN
Director: J. RASIMAS
Energy and Environment
E Markets and cases IV
D Markets and cases III - Financial services
C Markets and cases II
B
G/6 Cartels settlements F. LAINA
G/5 Cartels V Y. DEVELLENES
G/4 Cartels IV Z. JAMBOR
G/3 Cartels III M. JASPERS
G/2 Cartels II D. VAN ERPS
G/1 Cartels I P. MALRIC-SMITH
Adviser: M. JOUVE-MAKOWSKA
Director: E. VAN GINDERACHTER
Cartels
G
Adviser: D. KLEEMANN
Deputy Director-General MERGERS Bernd LANGEHEINE
02 Antitrust and Merger Case Support J. LUEBKING
Deputy Director-General ANTITRUST Cecilio MADERO
Director General Alexander ITALIANER
Kai-Uwe KÜHN Adviser antitrust Adviser Mergers Adviser State Aids S. ALBAEK M. DE LA MANO V. VEROUDEN
Chief Economist
Markets and cases I
A/6 Consumer Liaison A. MUSIL
A/5 International Relations D. VAN DER WEE
A/4 European Competition Network E. SAKKERS
A/1 Private enforcement W. MEDERER
Director: C. ESTEVA MOSSO
Director: I. BENOLIEL
R/1 Document Management C. DUSSART-LEFRET
A Policy and Strategy
R
Registry and Resources
Assistants Julia BROCKHOFF Christof LESSENICH
Audit Adviser Pascal SCHLOESSLEN
Director: H. DRABBE
Mergers D. BOESHERTZ
State aids Post and other services J. FERNANDEZ MARTIN F/3
F/4
State aids Transport A. ALEXIS
Antitrust Transport, Post and other services H. DE BROCA
Director: F. ILZKOVITZ
Transport, Post and other services
Markets and cases V
F
H/4 Enforcement and procedural reform B. BRANDTNER
H/3 State aid network, Transparency and Fiscal aid M. NEGENMAN
H/2 R&D, innovation and risk capital P. CESARINI
H/1 Regional aid B. RODRIGUEZ GALINDO
F/2
F/1
16-06-2012
State aid Cohesion, R&D&I and enforcement
H
K. VAN DE CASTEELE (ff)
03 State aid Case Support
Deputy Director-General STATE AIDS Gert-Jan KOOPMAN
04 Strategy and Delivery A. COLUCCI
01 Communications Policy and interinstitutional relations K. COATES
Organigram of the Competition Directorate‑General (14 July 2012) Information section
European Commission Directorate-General for Competition
Competition Policy Newsletter
If you want to retrieve phone numbers or the e‑mail adresse of a member of staff, please consult the official EU phone book: http://ec.europa.eu/staffdir/plsql/gsys_tel.display_search?pLang=EN
49
Information section
Speeches
From 1 May 2011 to 31 August 2011 This section lists recent speeches by the Commis‑ sioner for Competition and Commission officials. Full texts can be found on http://ec.europa.eu/competition/speeches. Documents marked with the reference “SPEECH/11/…” can also be found on http://europa.eu/rapid Joaquín Almunia, Vice‑President European Commission responsible for Competition policy SPEECH/11/17 - 14 January
How competition policy contributes to competitive‑ ness and social cohesion Lisbon, Portugal - Europa 2011 - Regulação e Com‑ petitividade SPEECH/11/515 - 12 July
Competition policy in 2010 and the SGEI Brussels, European Parliament SPEECH/11/481 - 28 June
Improving Europe’s competitiveness in the global economy London, United Kingdom - British‑Amer‑ ican Business Conference SPEECH/11/457 - 21 June
Las claves de la política de competencia en la es‑ trategia europea Madrid, Spain -Jornadas Anuales de la CNC SPEECH/11/451 - 17 June
Beyond the banking crisis: another chapter in Ire‑ land’s history of resilience Dublin, Ireland - Federation of International Banks in Ireland SPEECH/11/444 - 16 June
Public services for a better Europe Budapest, Hun‑ gary - The European Centre of Employers and En‑ terprises providing Public services SPEECH/11/396 - 30 May
Fair process in the EU competition enforcement Budapest, Hungary - European Competition Day
21 May
Commencement address at Suffolk University Bos‑ ton, USA - Suffolk University, Boston SPEECH/11/346 - 18 May
A new decade for the International Competition Network The Hague, The Netherlands - 10th Annual Confer‑ ence of the International Competition Network SPEECH/11/337 - 16 May
Competition Policy Issues in Financial Markets Lon‑ don - CASS Business School SPEECH/11/328 - 12 May
Reform of EU State aid rules on the Services of General Economic Interest en Committee of the Regions, Brussels - Committee of the Regions SPEECH/11/300 - 02 May
Reforming EU State aid rules on public services: The way forward Brussels - European Policy Center By the Competition Directorate‑General staff 24 June
Alexander Italianer: The new economic cli‑ mate: driving competition in key sectors London, Chatham House 01 June
Cecilio Madero Villarejo: Recent trends in EU merger control 7th International Conference on Competition Law and Policy, Beijing, China 30 May
Alexander Italianer: Closing remarks: Convergence in the ECN, the way forward European Competi‑ tion Day, Budapest, Hungary
Press releases and memos
From 1 May 2011 to 31 August 2011 All texts are available from the Commission’s press release database RAPID http://europa.eu/rapid Enter the code (e.g. IP/11/14) in the ‘reference’ in‑ put box on the research form to retrieve the text of a press release. Languages available vary for differ‑ ent press releases.
SPEECH/11/385 - 26 May
Antitrust
An integrated approach to State aid Brussels European State Aid Law Institute Conference
IP/11/34 - 14/01/2011
50
Commission market tests measures proposed by Greece concerning the Greek electricity market
Number 3 — 2011
Competition Policy Newsletter MEMO/11/307 - 17/05/2011
Commission investigates luxury watch manufacturers
Commission confirms unannounced inspections in the container liner shipping sector
IP/11/893 - 15/07/2011
Commission investigates possible foreclosure of competitors from Austrian markets for management of packaging waste IP/11/891 - 15/07/2011
Commission opens formal proceedings against Czech electricity incumbent CEZ MEMO/11/505 - 13/07/2011
Commission welcomes Court judgment in the El‑ evators and Escalators cases IP/11/861 - 12/07/2011
2010 was a very active year in competition enforce‑ ment and reforms, annual report shows IP/11/842 - 06/07/2011
Commission welcomes improved market entry for lung disease treatments IP/11/840 - 06/07/2011
Commission welcomes new decrease in problematic pharma patent settlements in the EU IP/11/839 - 06/07/2011
Commission sends Statement of Objections to sus‑ pected participants in power cables cartel IP/11/820 - 04/07/2011
Commission repeals Heat Stabilisers cartel decision for Ciba/BASF and Elementis after EU Court judg‑ ment IP/11/771 - 22/06/2011
Commission fines Telekomunikacja Polska S.A € 127 million for abuse of dominant position MEMO/11/395 - 09/06/2011
Commission confirms investigation into suspected cartel in the sector of seatbelts, airbags and steering wheels MEMO/11/355 - 27/05/2011
Commission confirms unannounced inspections in the engines’ sector IP/11/632 - 24/05/2011
Commission fines Suez Environnement and Lyon‑ naise des Eaux €8 million for the breach of a seal during an inspection Number 3 — 2011
IP/11/571 - 16/05/2011
Commission market tests Standard & Poor’s com‑ mitments on international securities identification numbers Merger control IP/11/997 - 30/08/2011
Commission approves proposed joint venture be‑ tween Hochtief and GeoSea IP/11/984 - 25/08/2011
Commission clears acquisition of US specialty chemical company Lubrizol Corporation by Berk‑ shire Hathaway IP/11/982 - 24/08/2011
Commission clears acquisition of G6 Rete Gas by F2i and AXA Private Equity IP/11/980 - 23/08/2011
Commission clears acquisition of Amprion by Mo‑ laris and Commerz Real IP/11/972 - 19/08/2011
Commission clears acquisition of the speciality chemicals company ISP by Ashland IP/11/971 - 19/08/2011
Commission approves acquisition of Phadia by Thermo Fisher IP/11/956 - 08/08/2011
Commission clears acquisition of Finnish Luvata’s rolled copper products division by German copper producer Aurubis IP/11/955 - 05/08/2011
Commission clears acquisition of German crane manufacturer Demag by US industrial group Terex Corporation IP/11/954 - 05/08/2011
Commission clears acquisition of French chemicals company Rhodia by Solvay IP/11/948 - 04/08/2011
Commission opens in‑depth investigation into pro‑ posed merger between Deutsche Börse and NYSE Euronext
51
Information section
IP/11/952 - 05/08/2011
Information section IP/11/949 - 03/08/2011
IP/11/832 - 05/07/2011
Commission approves acquisition of Belgian insurer Nateus by Bâloise of Switzerland
Commission approves acquisition of CEPSA by In‑ ternational Petroleum Investment Company
IP/11/947 - 02/08/2011
IP/11/821 - 30/06/2011
Commission approves acquisition security services company Niscayah by Securitas
Commission approves acquisition of Austrian heat‑ ing oil distributor OMV Wärme by a subsidiary of the Raiffeisen group
IP/11/943 - 02/08/2011
Commission approves acquisition of Swiss pharma company Nycomed by Takeda of Japan
IP/11/819 - 30/06/2011
IP/11/930 - 26/07/2011
IP/11/815 - 30/06/2011
Commission approves acquisition of pharmaceuti‑ cal supplier Capsugel by US investment fund KKR IP/11/929 - 26/07/2011
Commission clears acquisition of the S‑PVC busi‑ ness of Tessenderlo by Ineos IP/11/928 - 26/07/2011
Commission clears acquisition of Medion by Le‑ novo IP/11/924 - 25/07/2011
Commission clears acquisition of Tognum and Ber‑ gen by Daimler and Rolls‑Royce IP/11/922 - 25/07/2011
Commission approves acquisition of power conver‑ sion company Converteam by General Electric IP/11/917 - 20/07/2011
Commission approves proposed joint venture be‑ tween Trenitalia and Veolia Transport IP/11/910 - 19/07/2011
Commission clears acquisition of Evonik’s carbon black business by Rhône Capital and Triton IP/11/899 - 19/07/2011
Commission approves acquisition of ThyssenKrupp Metal Forming by Corporación Gestamp, both sup‑ pliers to the automotive sector IP/11/865 - 13/07/2011
Commission approves acquisition of Finnish paper company Myllykoski Group by UPM‑Kymmene IP/11/850 - 08/07/2011
Commission clears acquisition of Bulgari by LVMH Commission clears merger of Polish banking and insurance subsidiaries of Austria’s Raiffeisen and Greece’s EFG Eurobank Ergasias IP/11/788 - 24/06/2011
Commission approves acquisition of internet retail‑ er Redcoon by Media‑Saturn IP/11/787 - 24/06/2011
Commission clears acquisition of a controlling stake in Behr by Mahle IP/11/780 - 23/06/2011
Commission approves acquisition of Siteco by Osram IP/11/764 - 21/06/2011
Commission clears acquisition of iSOFT by CSC IP/11/749 - 17/06/2011
Commission refers Liberty Global planned acquisi‑ tion of German cable company KBW to German competition authority IP/11/748 - 17/06/2011
Commission approves acquisition of biomedical company Beckman Coulter by technology group Danaher IP/11/747 - 17/06/2011
Commission approves acquisition of automotive busi‑ ness of Keiper Recaro Group by Johnson Controls IP/11/735 - 15/06/2011
Commission clears acquisition of Columbian Chemicals by Birla Group
Commission clears acquisition of Rio Tinto’s talc business by Imerys
IP/11/701 - 14/06/2011
IP/11/848 - 07/07/2011
IP/11/690 - 10/06/2011
Commission approves acquisition of Janssen Ani‑ mal Health by pharmaceutical group Eli Lilly
Commission approves acquisition of Ferrosan’s Consumer Health Care Business by Pfizer
52
Commission clears acquisition of Parmalat by Lactalis
Number 3 — 2011
Competition Policy Newsletter IP/11/531 - 04/05/2011
Commission approves joint acquisition of German polyester producer Trevira by Indorama and Sin‑ terama
Commission clears proposed merger of the orange juice businesses of Votorantim and Fischer
IP/11/684 - 06/06/2011
Commission approves acquisition of Sanex by Colgate
Commission clears proposed acquisition of Ger‑ man chocolate manufacturer KVB by Cargill
IP/11/672 - 01/06/2011
State aid control
Commission approves styrene joint venture of BASF and INEOS, subject to conditions
IP/11/936 - 29/07/2011
IP/11/661 - 30/05/2011
Commission opens in‑depth investigation into state aid to UK postal operator Royal Mail
Commission clears Axa, Permira online travel agen‑ cy joint venture
IP/11/913 - 20/07/2011
IP/11/660 - 30/05/2011
Commission temporarily approves rescue aid for Irish Life & Permanent Group Holdings
Commission opens in‑depth investigations into two proposed acquisitions in the hard disk drive sector
IP/11/905 - 19/07/2011
IP/11/655 - 27/05/2011
Digital Agenda: Commission starts legal action against 20 Member States on late implementation of telecoms rules
Commission approves proposed acquisition of Kokerei Prosper by ArcelorMittal Bremen Gmbh IP/11/617 - 19/05/2011
Commission clears proposed joint venture between Dutch pharma company DSM and Sinochem IP/11/573 - 13/05/2011
IP/11/515 - 02/05/2011
IP/11/898 - 18/07/2011
Commission approves restructuring plan of Hypo Real Estate and clears the aid MEMO/11/516 - 18/07/2011
Commission approves proposed stake of PetroChi‑ na in certain Ineos assets
State aid: Overview of decisions and on‑going in‑depth investigations in the context of the finan‑ cial crisis (situation as of 14 July 2011)
IP/11/572 - 13/05/2011
IP/11/892 - 15/07/2011
Commission clears acquisition of Dionex by Ther‑ mo Fisher
Commission temporarily approves rescue aid for merged entity Educational Building Society/Allied Irish Banks
IP/11/564 - 12/05/2011
Commission clears acquisition of British automo‑ tive repair company Speedy (Kwik‑Fit) by Itochu of Japan
IP/11/876 - 13/07/2011
IP/11/558 - 11/05/2011
IP/11/875 - 13/07/2011
Commission approves acquisition of joint control of Ansaldo Energia by First Reserve Fund and Fin‑ meccanica
decisions on regional investment aid for BMW, Volkswagen, Globalfoundries and CRS Reprocess‑ ing in Germany and AU Optronics in Slovakia
IP/11/543 - 05/05/2011
IP/11/874 - 13/07/2011
Commission opens in‑depth investigation into pro‑ posed merger between Caterpillar and MWM
Commission opens 3 in‑depth state aid investiga‑ tions in air transport in France, Germany and Ire‑ land; clears Dutch air passenger tax
IP/11/536 - 05/05/2011
Commission clears acquisition of Bucyrus by Cat‑ erpillar
Number 3 — 2011
Commission clears investment fund to support ur‑ ban regeneration in Northwest England
IP/11/870 - 13/07/2011
State aid: Commission finds aid for Finnish Proper‑ ty Company Ålands Industrihus incompatible with EU state aid rules and orders recovery 53
Information section
IP/11/693 - 09/06/2011
Information section IP/11/869 - 13/07/2011
IP/11/801 - 29/06/2011
Commission orders recovery of incompatible state aid in favour of Bulgaria’s Ruse Industry
State aid: Commission approves resolution of Anglo Irish Bank and Irish Nationwide Building Society
IP/11/867 - 13/07/2011
IP/11/769 - 22/06/2011
State aid: Commission approves Romanian Green Certificates renewable energy support scheme
State aid: Spring Scoreboard shows Member States spending more to boost Europe’s competitiveness
IP/11/866 - 13/07/2011
IP/11/768 - 22/06/2011
Commission opens in‑depth inquiry into restructur‑ ing aid to Greek railway company TRAINOSE
The Commission opens an in‑depth investigation into restructuring of SeaFrance
IP/11/864 - 13/07/2011
IP/11/757 - 20/06/2011
State aid: Greece needs to recover around €17 mil‑ lion from Aluminium of Greece
Commission consults on support to film sector
IP/11/854 - 11/07/2011
Commission consults on film support issues – fre‑ quently asked questions
State aid: Commission temporarily approves rescue aid for Bank of Ireland IP/11/825 - 01/07/2011
MEMO/11/428 - 20/06/2011
IP/11/706 - 15/06/2011
State aid: Commission launches investigation into tax benefits granted by Spain for the purchase of ships
Commission opens in‑depth investigation into fi‑ nancing of infrastructure projects at German Leip‑ zig/Halle airport
IP/11/809 - 29/06/2011
IP/11/677 - 06/06/2011
State Aid – Germany: Aid to the “Gesellschaft für Weinabsatz” partially incompatible
Commission approves liquidation aid for Danish Eik Bank
IP/11/808 - 29/06/2011
IP/11/676 - 06/06/2011
State Aid – Belgium: Funding of TSE tests for bo‑ vines in 2003-04 partly incompatible
State aid: Commission temporarily approves rescue aid for Danish Amagerbanken
IP/11/807 - 29/06/2011
IP/11/636 - 24/05/2011
State Aid: In‑depth investigation into Finnish plans to modify investment aid and young farmers start‑up support
State aid: Commission temporarily approves aid for Austrian Hypo Alpe Adria Group
IP/11/806 - 29/06/2011
State aid: Commission clears German tax exemption for flights to and from North Sea islands
Commission prohibits aid to Greek casinos; finds that privatisation of Casino Mont Parnès involved no aid
IP/11/804 - 29/06/2011
IP/11/634 - 24/05/2011
Commission approves Slovenian aid towards the closure of the Trbovlje Hrastnik coal mine
The Commission rules that Crédit Mutuel did not benefit from overcompensation for distribution of the Livret bleu savings account
IP/11/803 - 29/06/2011
The Commission approves equipment transfer pro‑ cedure under French port reform IP/11/802 - 29/06/2011
the Commission confirms the state guarantee grant‑ ed to the IFP (Institut Français du Pétrole) because of its EPIC status
54
IP/11/635 - 24/05/2011
IP/11/633 - 24/05/2011
Commission opens in‑depth investigations into State aid to Romanian air transport sector; approves aid for two regional airports in the UK and in Italy IP/11/626 - 23/05/2011
Commission approves restructuring plan of Agri‑ cultural Bank of Greece
Number 3 — 2011
Competition Policy Newsletter
Overview of decisions and on‑going in‑depth inves‑ tigations in the context of the financial crisis (situa‑ tion as of 23 May) IP/11/555 - 10/05/2011
State aid: the procedure for awarding France’s fourth 3G mobile phone licence did not involve state aid IP/11/554 - 10/05/2011
Commission extends formal investigation against Germany concerning aid to Deutsche Post
Number 3 — 2011 55
Information section
MEMO/11/325 - 23/05/2011
Information section
Publications
Electronic subscription service It is possible to receive an email message when the electronic version of the Competition Policy News‑ letter is available, and also to be notified about the availability of forthcoming articles before the Newsletter is published. Readers looking for information on cases and latest updates in the competition policy area will also be able to subscribe to: · the Competition weekly news summary, including short summaries and links to press releases on key developments on antitrust (in‑ cluding cartels), merger control and State aid control, selected speeches by the Commissioner for competition and judgements from the Euro‑ pean Court of Justice, · the State Aid Weekly e‑News, which fea‑ tures information on new legislative texts and
56
proposals, decisions of the European Commis‑ sion and the Courts of the European Union, information on block exempted measures intro‑ duced by Member States and other State aid‑re‑ lated documents and events · the Annual report on competition policy, published in 22 languages · and other publications and announcements, such as the report on car prices within the Eu‑ ropean Union, studies, reports and public con‑ sultations on draft legislation How to subscribe to the competition e‑newsletters Access the service on http://ec.europa.eu/competition/publications Electronic versions, order details for print versions (when available) and a list of key publications can be found on http://ec.europa.eu/competition/publications/
Number 3 — 2011
Competition Policy Newsletter
Antitrust 3 4 6 7 8 10
39525 Telekomunikacja Polska C322/81 Michelin vs. Commission, T-301/04 Clearstream, COMP/37.792 Microsoft, C-52/09 TeliaSoneraSverige T203-/01 Manufacture francaise des pneumatiques Michelin v. Commission C-280/08,T-271/03 Deutsche Telekom COMP/39.796 Suez Environment breach of seal, COMP/39.326 and T-141/08 E.ON Energie AG C-97/08 Akzo Nobel NV Mergers
12 13 14 19 20 21 22 23 24 25 26 27 28 30 32 35 39 43 46
M.6093 BASF/Ineos Styrene, M.5907 Votorantim/Fischer M.6101 UPM/Myllykoski, M.5900 LGI/KBW M.5907 Votorantim/Fischer/JV State Aid C 88/1997 Crédit Mutuel (France), SA.21654 Ahlands Industrihus (Finland) SA.28973 Casinos (Greece), SA.32888 Tax exemption for flights to and from North Sea islands (Germany), N 274b/20120 Natural disasters (Germany) SA.32172, SA.32554 (Austria), SA.32634 (Denmark) SA.33153, SA.33154, SA.31154 (Greece), SA. 32994, SA.32995 (Hungary), SA.33006 (Ireland), SA.33135 (Lithuania), SA.32946, SA.33008, SA.33007 (Poland), SA.33178, SA.33177 (Portugal), SA.32990 (Spain) Banking Schemes SA.31945 (Denmark), SA.32504,C11/2010, SA.33216 (Ireland) Banking Schemes SA.33296 (Ireland), SA.28265 Banking Recapitalisation, SA.33204 (Greece), SA. 32051 (Latvia), SA.33287 (Luxembourg), SA.32986 (Spain) Bank Guarantees, SA.28903 Ruse Industry (Bulgaria) C 35/2008 Institut Francais du Pétrole (France), SA.33134 Green Certificates (Romania), SA.32835 Urban regeneration (United Kingdom) SA.29191 Fourth 3G mobile phone license (France), SA.16408 Casino Mont Parnès (Greece) SA.29191 France – 4th UMTS license (France), C-431/07 and T-475/04 Bouygues and Bouygues Télécom v. Commission (France) (s. page 29) C-462/99 Connect Austria (Austria) NN 76/2006 Czech Republic (Czech Republic) C-298/00 Italy vs. Commission (Italy) Banking Schemes/Guarantee/Support: NN 48/2008, N 349/2009, N 198/2010, N 254/2010, N 487/2010, SA.33006, N 347/2010, NN 35/2010, N 356/2009, NN 12/2010, C11/2010, SA.32057, NN 11/2010, N 725/2009 (Ireland) SA.32835/2011 Northwest Urban Investment Fund, SA.32147/2011 (Spain) T163/05 Bundesverband deutscher Banken vs. Commission (Germany) N 44/2008, C 15/2009, N 694/2009, N 161/2010, Hypo Real Estate (Germany) C40/2009 WestLB (Germany)
Number 3 — 2011 57
Information section
Competition cases covered in this issue
Luxembourg: Publications Office of the European Union 2012 —57 pp. — 21 × 29.7 cm ISSN: 1025-2266
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Competition Policy Newsletter Published three times a year by the Competition Directorate-General of the European Commission Editors: Kevin Coates, Julia Brockhoff, Christof Lessenich Address: European Commission Competition Directorate-General Communications Policy and Inter-Institutional Relations 1049 Bruxelles/Brussel BELGIQUE / BELGIË E-mail:
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